- 3 -
These contracts were long-term contracts as defined by section
460. After Qwest contracted with the third-party customers, it
decided to install for its own potential future use or sale
additional conduit or fiberoptic cable along the same route as
the customers’ conduit or cable.3
Because Qwest was engaged in the simultaneous installation
and sale of conduit or fiber to third-party customers and the
installation and retention of additional conduits or fibers for
its own potential future sale or use, Qwest allocated total
project costs between third-party contracts and the retained
assets using an incremental cost allocation method. Qwest’s
incremental cost allocation method is described as follows: (1)
Qwest allocated to the customer contracts what it determined to
be direct costs associated with those contracts; (2) Qwest
allocated to its retained assets what it determined to be the
direct costs associated with its retained conduits and fibers;
and (3) Qwest allocated what it determined to be indirect costs
2(...continued)
as “Qwest”. At the beginning of the years in issue, petitioners
owned 75 percent of Qwest and, by August 1995, owned 100 percent.
For a description of the conduit installation projects and the
IRU projects, see Anschutz I.
3 Qwest also engaged in other projects which were not at
issue. For a description of all projects during the years in
issue, see Anschutz I.
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