EXHIBIT 10.7


                                OPTION AGREEMENT


        This  Option  Agreement  is made  as of  _______________,  1999,  by and
between  Pathnet   Telecommunications,   Inc.,  a  Delaware   corporation   (the
"Company"),  and Colonial Pipeline Company, a Delaware and Virginia  corporation
("Colonial").

                              W I T N E S S E T H:

        WHEREAS,  on November __,  1999,  the parties  hereto  entered into that
certain Contribution Agreement (the "Contribution  Agreement") pursuant to which
Colonial has agreed to contribute to the Company cash and certain  property,  on
the terms and conditions described therein; and

        WHEREAS, in consideration for such contributions, the Company has agreed
to issue to  Colonial  certain  shares  of the  Company's  Series D  Convertible
Preferred  Stock,  par value $0.01 per share  ("Series D  Preferred  Stock") and
certain shares of the Company's Series E Convertible  Preferred Stock, par value
$0.01 per share ("Series E Preferred Stock"); and

        WHEREAS,  pursuant to the Contribution  Agreement,  the Company has also
agreed  to grant (a) an option to  purchase  additional  shares of its  Series E
Convertible  Preferred  Stock, to be exercised by Colonial (with the approval of
the Company if above the level  specified  herein) or to be assigned by Colonial
to certain Designated  Entities (as defined below) and (b) an option to purchase
shares of its common  stock (the  "Common  Stock") to  Colonial  if the  Company
pursues an Initial Public Offering (as defined below),  subject to the terms and
conditions set forth herein.

        NOW THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:

        1.      Grant of Options.

                (a)  In   consideration   of  $1,000,000  paid  by  Colonial  by
electronic  wire transfer to the Company upon execution of this  Agreement,  the
Company  hereby  grants to Colonial the right and option (the  "Preferred  Stock
Option")  to  purchase  from  the  Company  all or any part of an  aggregate  of
1,593,082  shares of Series E Preferred  Stock,  subject  to, and in  accordance
with,  the terms and  conditions  set forth in this  Agreement.  Subject  to the
provisions of Section 6, Colonial may assign the Preferred Stock Option in whole
or in part to one or more of the  entities  listed on Exhibit B attached  hereto
and incorporated  herein (the "Designated  Entities" and, to the extent Colonial
so assigns a portion of the Preferred Stock Option to a Designated Entity,  such
Designated Entity is sometimes referred to herein as a "Permitted Purchaser") by
providing  written notice to the Company of the name and address of the assignee
and the number of shares subject to the Preferred  Stock Option assigned to such
assignee (the  "Assigned  Option  Shares").  To the extent the  Preferred  Stock
Option  is  exercised  by  Colonial  for more  than  455,166  shares of Series E
Preferred  Stock,  the exercise  with respect to shares in excess of that amount
shall


<PAGE>

require the prior written  consent of the Company,  which may be withheld in the
Company's  sole  discretion.  Any  assignment  to, or exercise  by, a Designated
Entity shall not require the prior written consent of the Company. The grant may
be exercised in whole or in part, but in no event shall the aggregate  number of
shares issued to Colonial and the Designated  Entities  pursuant to the exercise
of the Preferred Stock Option exceed such 1,593,082 shares of Series E Preferred
Stock (subject to adjustment as provided herein).

                (b) For value  received,  the Company hereby grants Colonial the
right and option (the "Common Stock  Option") to purchase from the Company up to
a whole number of shares of Common Stock equal to ten percent (10%) of the total
number of shares of Common Stock  actually sold in the Company's  Initial Public
Offering  (excluding  any shares  issuable upon  exercise of any  over-allotment
option granted to the underwriters of the Initial Public Offering),  subject to,
and in accordance with, the terms and conditions set forth in this Agreement. As
used herein,  "Initial  Public  Offering" means the closing of a firm commitment
underwritten   initial  public  offering  for  cash  pursuant  to  an  effective
registration  statement  under  the  Securities  Act of 1933,  as  amended  (the
"Securities  Act"),  and the rules and regulations  promulgated  thereunder from
time to time,  covering the offer and sale of the Company's  Common Stock to the
public. Any shares of Common Stock acquired by Colonial pursuant to this Section
1(b) shall be subject to the registration rights granted to Colonial pursuant to
the  Stockholders  Agreement of even date herewith among the Company and certain
of its stockholders (the "Stockholders Agreement").

        2.      Term of Options.

                (a) The Preferred Stock Option shall be exercisable, in whole or
in part,  during the term  commencing on the date hereof and ending at 5:00 p.m.
on the date (the "Expiration  Date") that is the earlier of (i) the date that is
the later to occur of (1) the 120th day after the  Agreement  Date (as such term
is  defined  in the  Contribution  Agreement),  and (2) the 15th day  after  the
Initial Closing Date (as such term is defined in the Contribution Agreement); or
(ii) 15 days after the filing by the Company of a registration  statement  under
the Securities Act, for an Initial Public Offering;  provided,  however, that on
and  after  the date  that is the  later to occur of (A) the 90th day  after the
Agreement  Date,  and (B) the 15th day  after  the  Initial  Closing  Date,  the
Preferred  Stock  Option  shall be  exercisable  solely in  connection  with the
concurrent  execution  by and  between  the  Company  and such of the  Permitted
Purchasers as shall seek to exercise such  Preferred  Stock Option of a mutually
acceptable agreement providing for the purchase, use, lease or other acquisition
by the  Company of  telecommunications  network  right-of-way  rights  from such
Permitted Purchasers,  on such terms as the Company and such Permitted Purchaser
or Permitted Purchasers may agree.

                (b)     Colonial may exercise the Common Stock Option solely in
connection with the Company's Initial Public Offering.

        3.      Exercise Price.

                (a) The  price  at  which  the  Preferred  Stock  Option  may be
exercised (the "Preferred Exercise Price") shall be $21.97 per share of Series E
Preferred Stock, as adjusted from time to time pursuant to Section 12 hereof.



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<PAGE>

                (b) The price at which the Common  Stock Option may be exercised
(the "Common Exercise Price") shall be ninety percent (90%) of the initial price
per share to the  public of the Common  Stock  being  offered  in the  Company's
Initial Public Offering,  as reflected on the cover page of the final prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b).

        4.      Exercise of Options.

                (a) The  purchase  rights  represented  by the  Preferred  Stock
Option are  exercisable  solely by  Colonial  or, upon  assignment,  one or more
Permitted  Purchasers  at any  time up to the  Expiration  Date for (i) all or a
portion of the shares of Series E Preferred  Stock specified in Section 1(a), if
exercised  by  Colonial,  or (ii) all or a portion  of its  respective  Assigned
Option Shares, if exercised by a Permitted Purchaser;  provided,  however,  that
the prior written  consent of the Company,  which consent may be withheld in the
Company's  sole  discretion,  shall be required  with respect to the exercise by
Colonial in its own name and on its own behalf of options  with  respect to more
than 455,166 Series E Preferred  Shares. To exercise the Preferred Stock Option,
each  Permitted  Purchaser  (or  Colonial,  as the case may be,  with the  prior
written consent of the Company in the Company's sole  discretion)  shall deliver
written  notice  thereof  (the  "Exercise  Notice")  to the  Company in the form
attached  hereto as Exhibit A duly  completed  and  executed  by such  Permitted
Purchaser (or Colonial,  as the case may be). Colonial or a Permitted  Purchaser
that  exercises its option as described in this Section 4(a) (and,  with respect
to  Colonial,  receives the prior  written  consent of the Company) is sometimes
referred to as a "Purchaser."

                (b) The purchase  rights  represented by the Common Stock Option
are  exercisable  by Colonial,  in whole or in part (and Colonial may specify in
such exercise  notice,  in lieu of or in addition to a percentage  of shares,  a
maximum  aggregate amount of its investment,  from which its percentage shall be
derived),  in connection with an Initial Public  Offering,  by written notice by
Colonial delivered to the Company not less than 10 days prior to the filing of a
registration  statement  by the  Company in  connection  with an Initial  Public
Offering  setting  forth any  maximum  aggregate  investment  amount as to which
Colonial  is  exercising  its  Common  Stock  Option,  and,  subject to any such
maximum,  Colonial's  desired  number of shares in respect of which  Colonial is
exercising its Common Stock Option. The Company shall notify Colonial in writing
at least 30 days prior to the filing of a registration  statement for an Initial
Public  Offering (and shall advise  Colonial as promptly as  practicable  of any
delay in the expected date for filing).

        5.      Closing of the Purchase.

                (a) The  closing of any  purchase  of Series E  Preferred  Stock
pursuant  to exercise  of the  Preferred  Stock  Option  (the  "Preferred  Stock
Closing") shall be held at the offices of the Company on a date agreed to by the
Company  and the  Purchaser,  but not later  than  thirty  (30)  days  following
delivery of the Exercise Notice.

                (b)     The closing of any purchase of Common Stock  pursuant to
                        exercise of the Common Stock  Option (the "Common  Stock
                        Closing") shall be held at the offices of the Company on
                        or as  soon  as  reasonably  practicable  following  the
                        closing date of the Initial  Public  Offering in respect
                        of which the option was so exercised.

                (c)     At the Preferred Stock Closing:



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<PAGE>

                (i) The  Company  shall  deliver to each  Purchaser  one or more
certificates representing the shares of Series E Preferred Stock to be purchased
by such Purchaser;

                (ii)  Each  Purchaser  shall  deliver  to the  Company  a signed
certificate, dated as of the date of the Closing as described in Section 7;

                (iii) Each Purchaser and the Company shall execute and deliver a
written  agreement,  whereby the Purchaser  shall agree to become a party to and
bound by the terms of the Stockholders  Agreement and the Company shall grant to
such  Purchaser  the  rights and  benefits  of a  "Stockholder"  as such term is
defined in the Stockholders Agreement; and

                (iv)  Payment of the  purchase  price for the Series E Preferred
Stock  shall  be made by wire  transfer  of  immediately  available  funds to an
account designated by the Company in an amount equal to (A) the number of shares
of Series E Preferred Stock  specified by the Purchaser in its Exercise  Notice,
multiplied by (B) the Preferred Exercise Price.

        (d)     At the Common Stock Closing:

                (i)  The  Company   shall   deliver  to  Colonial  one  or  more
certificates representing the shares of Common Stock to be purchased pursuant to
exercise of the Common Stock Option; and

                (ii) Payment of the purchase price for the Common Stock shall be
made by wire transfer of immediately available funds to an account designated by
the  Company  in an amount  equal to (A) the  number  of shares of Common  Stock
specified  by  Colonial  in its  notice  delivered  pursuant  to  Section  4(b),
multiplied by (B) the Common Exercise Price.

        6.  Transferability.  Colonial  shall not assign,  hypothecate,  donate,
encumber,  transfer  or  otherwise  dispose  of any  interest  in the  Series  E
Preferred Stock or Common Stock of the Company,  and shall not assign all or any
portion of the Preferred Stock Option,  except in compliance with the provisions
herein,  the Stockholders  Agreement,  and applicable  securities laws.  Without
limitation of the foregoing, Colonial shall not assign all or any portion of the
Preferred Stock Option except (i) to a Designated  Entity that agrees in writing
to be bound by the  terms  of this  Option  Agreement  in the same  manner  that
Colonial is bound (including,  without limitation, this Section 6, but excluding
the restrictions  upon Colonial's direct exercise of the Preferred Stock Option,
which apply only to Colonial and any successor entity thereto),  and (ii) on the
condition that Colonial  provides to the Company an opinion of counsel,  in form
and substance to the reasonable  satisfaction of the Company, to the effect that
such assignment and the issuance of any Series E Preferred Stock or Common Stock
upon  exercise of the  Preferred  Stock Option by the assignee  will not require
registration  of  such  securities  under  the  Securities  Act of  1933  or any
applicable state securities law.

        7.      Representations and Warranties.



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<PAGE>

                (a) At the Preferred Stock Closing, as a condition thereto, each
Purchaser shall deliver to the Company a certificate representing and warranting
the following in connection  with the acquisition of Series E Preferred Stock by
such Purchaser pursuant to the exercise of the Preferred Stock Option:

                        (i)     The Purchaser is aware of the Company's business
affairs and financial condition and has acquired sufficient information from the
Company  about the Company to reach an informed  and  knowledgeable  decision to
acquire the Series E Preferred  Stock.  The Purchaser is purchasing the Series E
Preferred Stock for investment for its own account only and not as a nominee for
any  party  and not  with a view to,  or for  resale  in  connection  with,  any
"distribution"  thereof  within the  meaning of the  Securities  Act  (except as
contemplated by Section 10).

                        (ii)    The Purchaser understands that Series E
Preferred Stock has not been registered  under the Securities Act by reason of a
specific exemption therefrom,  which exemption depends upon, among other things,
the bona fide nature of such Purchaser's investment intent as expressed herein.

                        (iii)   The Purchaser further understands that the
Series E Preferred  Stock must be held  indefinitely  unless it is  subsequently
registered  under the Securities Act or an exemption from such  registration  is
available.  The Purchaser further  acknowledges and understands that the Company
is under no  obligation  to register the Series E Preferred  Stock except as set
forth  in  the  Stockholders  Agreement.  The  Purchaser  understands  that  the
certificate  evidencing  the Series E  Preferred  Stock  (and any  Common  Stock
received upon  conversion  thereof) will be imprinted with the following  legend
which prohibits its transfer unless it is registered or such registration is not
required in the opinion of counsel for the Company.

                THE  SECURITIES   REPRESENTED  HEREBY  HAVE  BEEN  ACQUIRED  FOR
                INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                OF 1933.  SUCH  SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
                ABSENCE OF SUCH  REGISTRATION  OR AN EXEMPTION  THEREFROM  UNDER
                SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE
                SECURITIES  AND  RESTRICTING  THEIR  TRANSFER  OR  SALE  MAY  BE
                OBTAINED AT NO COST BY WRITTEN  REQUEST MADE TO THE SECRETARY OF
                THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.

                (b) The Company  hereby  represents and warrants to Colonial and
each Purchaser,  as of the date hereof and as of the date of the Preferred Stock
Closing, as follows:

                        (i)     The Company has all requisite corporate power
and  authority  to execute and  deliver  this  Agreement,  to issue and sell the
Series E Preferred Stock and to carry out the provisions of this Agreement.



                                       -5-
<PAGE>

                        (ii)    All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization of this
Agreement,  the  performance  of all  obligations  of the Company  hereunder and
thereunder at the Preferred Stock Closing and the authorization,  sale, issuance
and  delivery  of the Series E  Preferred  Stock has been taken or will be taken
prior to the Preferred  Stock  Closing.  Upon its  execution and delivery,  this
Agreement will be a valid and binding obligation of the Company,  enforceable in
accordance with its terms.

                        (iii)   When issued in compliance with the provisions of
this Agreement,  the Series E Preferred Stock will be validly issued, fully paid
and  nonassessable,  and will be free of any  liens or  encumbrances;  provided,
however,  that the Series E Preferred  Stock may be subject to  restrictions  on
transfer  under state and/or federal  securities  laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.

                (c) The Company hereby  represents and warrants to Colonial,  as
of the date hereof and as of the date of the Common Stock Closing, as follows:

                        (i)     The Company has all requisite corporate power
and  authority  to execute and  deliver  this  Agreement,  to issue and sell the
Common Stock and to carry out the provisions of this Agreement.

                        (ii)    All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization of this
Agreement,  the  performance  of all  obligations  of the Company  hereunder and
thereunder at the Common Stock Closing and the authorization, sale, issuance and
delivery of the Common Stock has been taken or will be taken prior to the Common
Stock Closing.  Upon its execution and delivery,  this Agreement will be a valid
and binding obligation of the Company, enforceable in accordance with its terms.

                        (iii)   When issued in compliance with the provisions of
this  Agreement,  the  Common  Stock  will be  validly  issued,  fully  paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Common  Stock may be subject to  restrictions  on transfer  under state
and/or federal  securities laws as set forth herein or as otherwise  required by
such laws at the time a transfer is proposed.

        8.      Conditions to Obligations of the Company.

                (a) The  Company's  obligation  to issue  and sell the  Series E
Preferred Stock at the Preferred  Stock Closing is subject to the  satisfaction,
on or prior to such Preferred Stock Closing, of the following conditions:

                        (i)     The representations and warranties in Section
7(a)  shall be true and  correct  in all  material  respects  at the date of the
Preferred Stock Closing.

                        (ii)    The Purchaser shall have performed and complied
with all agreements and conditions  required to be performed or complied with by
Purchaser under this Agreement on or before the Preferred Stock Closing.



                                       -6-
<PAGE>

                        (iii)   As of the Preferred Stock Closing, the sale and
issuance of the Series E Preferred Stock shall be legally  permitted by all laws
and regulations to which any Purchaser and the Company are subject.

                        (iv)    The Purchaser shall have executed and delivered
the Stockholders Agreement as provided herein.

                (b) The Company's  obligation to issue and sell the Common Stock
at the Common Stock Closing is subject to the satisfaction,  on or prior to such
Common Stock Closing, of the following conditions:

                        (i)     Colonial shall have performed and complied with
all  agreements  and  conditions  required to be performed  or complied  with by
Colonial  under this Agreement and the  Contribution  Agreement on or before the
Common Stock Closing.

                        (ii)    As of the Common Stock Closing, the sale and
issuance  of the  Common  Stock  shall  be  legally  permitted  by all  laws and
regulations to which Colonial and the Company are subject.

                        (iii)   A registration statement relating to the Initial
Public  Offering  shall have become  effective and no stop order  suspending the
effectiveness  thereof shall have been issued and no proceedings  therefor shall
be pending or threatened by the Securities and Exchange Commission.

        9. Rights of Stockholders.  With respect to the Series E Preferred Stock
and Common Stock subject to option hereunder, neither Colonial nor any Permitted
Purchaser shall be entitled to vote or receive dividends or be deemed the holder
of such  Series E Preferred  Stock or Common  Stock  until the  Preferred  Stock
Option or Common Stock Option shall have been exercised as provided  herein.  In
addition,  nothing contained herein be construed to confer upon Colonial nor any
Permitted Purchaser,  by virtue of their ownership of the Preferred Stock Option
or Common Stock Option, any of the rights of a stockholder of the Company or any
right to vote for the  election of  directors  or upon any matter  submitted  to
stockholders  at any  meeting  thereof,  or to give or  withhold  consent to any
corporate  action  (whether  upon  any  recapitalization,   issuance  of  stock,
reclassification  of stock,  change of par  value,  or change of stock to no par
value, consolidation,  merger, conveyance, or otherwise) or to receive notice of
meetings,  or to receive dividends or subscription rights or otherwise until the
Preferred  Stock Option or the Common Stock Option shall have been  exercised as
provided herein.

        10.     Consulting Agreement. Notwithstanding anything contained herein
                or in any certificate delivered hereunder or under the
                Contribution Agreement or any of the documents, instruments or
                agreements executed in connection with such Contribution
                Agreement, the Company acknowledges that certain of the
                Designated Entities have entered into, or may in the future
                enter into, Consulting Agreements with Colonial pursuant to
                which Colonial shall be entitled to receive from such Designated
                Entities certain consideration, which may include shares of



                                       -7-
<PAGE>

                the Company's Preferred Stock, upon the conditions specified in
                the Consulting Agreements.

        11.     Reservation of Stock.

                (a) The Company  covenants  that  during the term the  Preferred
        Stock  Option  is  exercisable,   the  Company  will  reserve  from  its
        authorized and unissued Series E Preferred Stock a sufficient  number of
        shares to provide for the issuance of Series E Preferred  Stock upon the
        exercise of the  Preferred  Stock Option (and shares of its Common Stock
        for issuance on conversion  of such Series E Preferred  Stock) and, from
        time to time,  will take all steps necessary to amend its Certificate of
        Incorporation  to  provide  sufficient  reserves  of  shares of Series E
        Preferred  Stock  issuable upon  exercise of the Preferred  Stock Option
        (and  shares of its Common  Stock for  issuance  on  conversion  of such
        Series E Preferred Stock). The Company further covenants that all shares
        that may be  issued  upon the  exercise  of  rights  represented  by the
        Preferred  Stock  Option or the Common  Stock  Option and payment of the
        Preferred  Exercise  Price or Common  Exercise  Price,  all as set forth
        herein, will be free from all taxes, liens and charges in respect of the
        issue  thereof  (other than taxes in respect of any  transfer  occurring
        contemporaneously or otherwise specified herein).

                (b) The Company  will use its best efforts to direct for sale to
Colonial in the Initial Public  Offering as many shares as Colonial may request,
subject to any  restrictions  imposed by the National  Association of Securities
Dealers and subject to the best advice of the underwriters of the Initial Public
Offering.

        12. Dilution.  In the event that prior to the delivery by the Company of
the shares of Series E Preferred  Stock in respect of which the Preferred  Stock
Option is granted, the outstanding shares of Series E Preferred Stock, including
any Common Stock into which the Series E Preferred  Stock shall be  convertible,
shall be changed in number or class or exchanged for a different  number or kind
of shares of stock or other  securities  of the  Company,  whether  by reason of
recapitalization,  reclassification, reorganization, combination, stock split or
reverse stock split,  or payment of a stock  dividend or other similar change in
capitalization,  the  number  and kind of  shares of  Series E  Preferred  Stock
subject to the Preferred Stock Option shall be adjusted in a manner set forth in
Section  5.3.4(e) and (f)(ii) of the  Certificate of  Incorporation  so that the
Preferred  Stock Option  shall  thereafter  represent  the right to acquire such
number and kind of securities as would have been issuable if the Preferred Stock
Option  had  been  exercised   immediately   prior  to  such   recapitalization,
reclassification,  reorganization,  combination,  stock  split or reverse  stock
split, or payment of a stock dividend or other similar change in capitalization.
For purposes of the foregoing, the "Certificate of Incorporation" shall mean the
Certificate  of  Incorporation  of the Company as amended  and/or  restated  and
effective  immediately  prior to the change in terms of the  Company's  Series E
Preferred Stock.

        13.  Series D Preferred  Stock.  The Company and one or more  Designated
Entities,  may, but are not required to, hereafter enter into agreements for the
issuance of stock of the Company in exchange for a contribution of rights-of-way
rights  from such  Designated  Entities.  In the event that the Company and such
Designated  Entities enter into such agreement,  Colonial and the Company hereby
agree that, between the date of this Option Agreement and the



                                       -8-
<PAGE>

Expiration  Date,  unless the  parties  otherwise  agree,  (a) the type of stock
delivered to such Designated  Entity shall be Series D Preferred  Stock, (b) the
purchase price per share for such Series D Preferred Stock shall be $21.97,  and
(c) the Company and the  Designated  Entity shall  execute and deliver a written
agreement  pursuant to which the  Designated  Entity shall become a party to and
bound by the terms of the  Stockholders  Agreement  such  that  such  Designated
Entity shall have the rights and benefits of a "Stockholder"  as such is defined
in the Stockholders Agreement.

        14.     Miscellaneous.

                (a)  Transfer and Similar  Taxes.  All stock,  stamp,  transfer,
registration or similar taxes or duties, if any,  resulting from the purchase of
Series E Preferred  Stock or Common Stock  pursuant to this  Agreement  shall be
paid by the Purchaser acquiring such shares.

                (b)     Authorized Signatories. The persons executing this
Agreement for and on behalf of Colonial and the Company each represent that they
have the requisite authority to bind the entities on whose behalf they are
signing.

                (c) Successors and Assigns. Except as provided in Sections 1 and
6, this  Agreement may not be assigned,  delegated or otherwise  transferred  by
either party without the written consent of the other party. Except as otherwise
expressly  provided  herein,  all  covenants  and  agreements  contained in this
Agreement  by or on behalf of the  parties  hereto  shall  bind and inure to the
benefit of the  respective  successors and assigns of the parties hereto whether
so expressed or not.

                (d)  Severability.  Whenever  possible,  each  provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable  law, but if any provision of this Agreement is held to be prohibited
by or invalid under  applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.

                (e) Counterparts.  This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such  counterparts  taken together shall constitute
one and the same Agreement.

                (f)     Descriptive Headings: Interpretation. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a Section of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation. Except as
otherwise provided herein, capitalized terms used herein without definition
shall have the meanings ascribed to them in the Contribution Agreement.

                (g) Governing Law. This Agreement  shall be governed by the laws
of the State of Delaware,  without  giving effect to its  principles or rules of
conflict of laws to the extent such  principles or rules would require or permit
the application of the laws of another jurisdiction.



                                       -9-
<PAGE>

                (h)     Amendment. No change or addition shall be made to this
Agreement except by a written agreement executed by Colonial and the Company.

                (i) Notices. All notices,  demands or other communications to be
given or delivered  under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when  delivered  personally
to the recipient,  sent to the recipient by reputable  express  courier  service
(charges  prepaid) or mailed to the recipient by certified or  registered  mail,
return receipt  requested and postage prepaid.  Such notices,  demands and other
communications  shall be sent to the  parties  hereto at the  address  indicated
below:

            If to Colonial:

            Colonial Pipeline Company
            945 East Paces Ferry Road, NE
            Atlanta, Georgia 30326-1125
            Attn:  General Counsel
            Fax:  404-841-2315

            With a copy to (which shall not constitute notice):

            Arnall Golden & Gregory, LLP
            2800 One Atlantic Center
            1201 West Peachtree Street
            Atlanta, Georgia 30309-3450
            Attn:  Donald I. Hackney, Jr., Esq.
            Fax:  404-873-8639

            If to a Permitted Purchaser:

            At the address provided by Colonial pursuant to Section 1(a) above

            If to the Company to:

            Pathnet Telecommunications, Inc.
            1015 31st Street, N.W.
            Washington, D.C.  20007
            Attn:  General Counsel
            Fax:  202-625-7369

            With a copy to (which shall not constitute notice):

            Covington & Burling
            1201 Pennsylvania Avenue., N.W.
            P.O. Box 7566
            Washington, D.C.  20044
            Attn:  Bruce S. Wilson, Esq.
            Fax:  202-662-6291



                                      -10-
<PAGE>

or to such  other  address  or to the  attention  of such  other  person  as the
recipient party has specified by prior written notice to the sending party.

                (j) Complete  Agreement.  This  Agreement  represents the entire
agreement  between Colonial and the Company covering  everything  agreed upon or
understood in this transaction and all other prior  agreements,  written or oral
are  merged  into  this  Agreement.  There  are no  oral  promises,  conditions,
representations,  understandings,  interpretations  or  terms  of  any  kind  as
conditions or inducements to the execution hereof in effect between the parties.







                            [SIGNATURE PAGES FOLLOW]






                                      -11-
<PAGE>


        IN WITNESS  WHEREOF,  the  parties  hereto  have  executed  this  Option
Agreement on the date first written above.

                                  PATHNET TELECOMMUNICATIONS, INC.
                                   /s/ Richard Jalkut
                                  ------------------------------------


                                  By:
                                     ---------------------------------
                                  Its: CEO
                                      --------------------------------

                                  COLONIAL PIPELINE COMPANY

                                  ------------------------------------


                                  By:/s/ D.L. Lemmon
                                     ---------------------------------
                                  Its: D.L. Lemmon, President and
                                      --------------------------------
                                        Chief Executive Officer






                                      -12-