[BETA] Fortnightly

They see leasing and dark fiber as "no-risk" ventures, with more upside potential.

Few seem ready to predict when demand might wane for rights-of-way for long-haul telecommunications. The consensus suggests a long-lived market - with interstate natural gas pipelines primed to take advantage. The question seems not so much whether to dive in, but how deeply to get involved.

Should pipelines stick to leasing rights-of-way to carriers? Or should they lay fiber and perhaps offer their own long-haul services?

"Essentially what you get today is an insatiable demand for bandwidth," says Bill Moroney, president of the United Telecom Council. He attributes the burgeoning demand to the Internet, both for entertainment and business-to-business communications. "All of this," Moroney says, "just burns up bandwidth."

In January the UTC completed a study[Fn.1] indicating that significant opportunities exist for entering the telecommunications market as a (1) carrier's carrier, (2) a dark fiber provider, or (3) only as a lessor of rights-of-way. Known years ago as the Utilities Telecommunications Council, the group shortened its name to better reflect a wider membership including gas pipelines.

Of course, it's nothing new for pipelines to lease rights-of-way for secondary purposes. Such uses "go back a long time," says Joe Kraemer, senior vice president at Hagler Bailly. "I think it would be impossible to find a pipeline that has not done a right-of-way deal."

Yet Kraemer sees a subtle change occurring in just the last 24 to 36 months. He believes pipelines are no longer sitting passively, waiting for a lessee, but instead are taking initiative to build a business in rights-of-way.

"The consciousness, the visibility, the awareness is up," says Kraemer.

The Buzz on the Street

UTC's Moroney sees the market in rights-of-way as "huge," whether for gas pipelines or electric transmission lines.

"It doesn't much matter," he adds. "The big telephone companies are just going nuts." And Moroney claims utilities are poised to exploit right-of-way assets through their own expertise.

"Utilities are superb at building infrastructure," he adds. "[It's] a construction business. They [utilities] will be the telecom infrastructure data company." Moroney sees this diversification into telecom as the "perfect capitalization" of utility core competencies.

Columbia Energy Group found Moroney's assertions to be true. Using the rights-of-way of the company's gas pipeline operating affiliates, Columbia Transmission Communications recently completed the first leg (from New York City to Washington, D.C.) of a planned 2,500-mile fiber optic network in the eastern United States.

"We were looking for ways to extract more value from our rights-of-way, says Bill Hederman, vice president, strategic initiatives, at Columbia Gas Transmission. Hederman explains that when Columbia first explored the idea of going into telecom, it found that two-thirds of the estimated costs for such a venture fell within its core strengths. It seemed a perfect fit.

"We wanted to move quickly, and found that [by] staying in our competencies [we could do so]," Hederman says.

Gary Murphy, vice president for utility services at Exelon Infrastructure Services, says his company, a subsidiary of PECO, found the plunge into telecom just as natural for exploiting the parent company's