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transactions or on the amount of costs allocated to Qwest’s
retained conduits. Nevertheless, for the above-stated reasons,
we do not accept respondent’s characterization of Qwest’s
business strategy.
2. Petitioners’ Characterization of Qwest’s
Transactions and Decision-Making Process
Petitioners contend that Qwest’s incremental cost allocation
method reflected Qwest’s decision-making process and the economic
reality of the underlying transactions. Specifically,
petitioners state:
Under its long-term customer contracts, Qwest obligated
itself to incur costs to satisfy its contractual
obligations, and then decided whether to make the
incremental investment necessary to install additional
empty conduits or fibers. In other words, Qwest’s
basic approach was to get a customer to pay enough to
justify installing and selling the conduit the customer
wanted, and then to consider whether to incur the
limited incremental risk of installing additional
conduit for its own potential future use or sale. * * *
Qwest’s cost allocation was entirely consistent with
its business strategy.
As discussed below, respondent argues that several facts
contradict petitioners’ characterization.
a. General Procedure Followed by Qwest
The parties stipulated that Qwest generally followed the
same procedure in its conduit installation projects: (1) Qwest
contracted with a third-party customer for installation of
conduit over a certain route; (2) conduit was installed along
Southern Pacific’s or other railroad companies’ rights-of-way;
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