Anschutz Company and Subsidiaries - Page 60

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                         c.   Allocation of Costs Necessary to Complete the           
                              Third-Party Customer Contracts to Those                 
                              Contracts                                               
               Because certain costs were necessary to complete the third-            
          party customer contracts, regardless of how many additional                 
          conduits or fiber were installed or pulled, Qwest allocated those           
          costs to third-party customer contracts.  Petitioners argue that            
          this is consistent with the economic reality of the transactions            
          because Qwest would not have incurred the costs absent the                  
          customer contract.  Respondent recognizes that Qwest had to incur           
          certain fixed costs regardless of whether one conduit is                    
          installed (or a 24-fiber cable is pulled), or multiple conduits             
          are installed (or a cable with more than 24 fibers is pulled)               
          simultaneously.  However, respondent argues that a portion of the           
          fixed costs, such as the costs of digging a trench and the costs            
          associated with perfecting Qwest’s rights-of-way, should also be            
          allocated to the retained assets because those costs also benefit           
          the retained assets.  Further, respondent argues that a portion             
          of cost adjustments based on terrain and budget overruns should             
          also be allocated to Qwest’s retained assets.                               
               As found above, Qwest would not have installed additional              
          conduit or pulled additional fiber without first securing the               
          customer contract.  Accordingly, we find that Qwest’s allocation            
          of those costs to only the customer contract was consistent with            







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Last modified: May 25, 2011