Days after rejecting a hostile takeover bid from NiSource Inc., Columbia Energy Group of Herndon announced yesterday that it plans to build a telecommunications network along its pipeline system. The project will fall under the natural gas company's subsidiary, Columbia Transmission Communications.
The fiber-optics network will carry voice, data and video and will initially link the Washington and New York City areas, a 260-mile stretch. Ultimately, the company plans to extend the network to 2,500 miles next year at a cost of $400 million to $500 million.
Columbia has been developing the fiber-optics plan for years, company officials said, and construction started in April.
But David Pentzien, president of Columbia Transmission, indicated the firm rushed out an announcement in the wake of the takeover bid by NiSource, which Columbia Energy claimed was too low.
"We've actually planned to put this on our analyst road show in two weeks," Pentzien said. "But clearly when you're in the midst of a hostile bid you certainly want to lay out some of the benefits to shareholders and this is clearly one of them."
"I don't think it really changes our strategy too much," said Larry Larsen, a spokesman for NiSource.
"I think the company [Columbia] overall is very attractive," Larsen added. "Obviously we're looking at it from a convergence aspect."
The pizazz of a telecom play can often boost a utility's stock. A recent example is Montana Power Co., which has invested in telecommunications over the past decade and is now enjoying a premium in its stock price, said one industry analyst.
Convergence, or companies' offering a range of services in addition to their traditional specialties, is a common trend in the utilities industry.
"We're seeing quite a bit of it in the industry as electricity and gas companies look to replace revenues that are at-risk due to deregulation, but also [as they] look to leverage assets that they've got which can . . . be used for telecommunications," said Les Silverman, head of the global electric power and natural gas practice at McKinsey & Co., a Washington consulting firm.
Columbia plans to market its network to companies such as Internet service providers and other telecommunications firms. It will position its network as more reliable than those that build their networks through, say, highways and railways, Pentzien said.
Columbia Energy's stock rose 31 1/4 cents a share yesterday to close at $62.18 3/4.