20080208Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER RED FO RD
COMMISSIONER SMITH
CO MMISSI 0 NER KEMPTON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GRACE SEAMAN
WAYNE HART
DATE:FEBRUARY 4, 2008
RE:CABLE ONE'S 2005 AND 2006 BROADBAND TAX CREDIT
APPLICATIONS; CASE NOS. GNR-06-4 AND GNR-07-
BACKGROUND
To be eligible for the broadband equipment tax credit, the taxpayer must obtain from the
Commission an Order confirming that installed equipment qualifies for capital investment credit.
Order No. 28784 and Idaho Code ~ 63-30291(4). The broadband equipment must be capable of
transmitting signals at a rate of at least two hundred thousand (200 000) bits per second to a
subscriber and at least one hundred twenty-five thousand (125 000) bits per second from a
subscriber. Idaho Code ~ 63-30291(3)(b). In the case of a cable or open video system operator
such qualifying equipment shall extend from the subscriber s side of the headend to the outside
ofthe structure in which the subscriber is located. Idaho Code ~ 63-30291(3)(b)(iii).
DISCUSSION
Cable One, Inc. filed two separate Applications seeking Commission Orders to certify
equipment for the broadband tax credit for 2005 and 2006. In both Applications, Cable One
states that the Company enhanced its Hybrid Fiber Coax Network (HFC) with the installation of
coaxial cable and fiber optics in and around the Company s service areas of Boise, Idaho Falls
Twin Falls, Pocatello and Lewiston. Cable One offers Internet and broadband services to homes
and businesses in Idaho at minimum upstream and downstream transmission rates of 128 kbps to
1.5 Mbps.
DECISION MEMORANDUM - 1 -FEBRUARY 4 2008
In addition to the electronics, fiber optic and coaxial cable, Cable One s Applications also
include labor and material costs for supporting hardware such as connectors, conduit, splicing
equipment, and enclosure materials. Cable One states that these costs are necessary for the
operation of the network and for extending the services to the subscriber s house. Each
Application is discussed in more detail below.
2005 Broadband Tax Credit Application; Case No. GNR-06-
On October 12 2006, Cable One filed an Application for broadband tax credit for
calendar year 2005. Staffs recommendation for this Application was delayed due to the
Company s protracted response time to Staffs request for additional information and
clarification of certain itemized expenses.
In the 2005 Application, Cable One states that its Idaho network at the end ofthe year
consisted of approximately 2 524 total miles of aerial coax, 2 537 miles of underground coax and
907 miles of fiber optic cable and passed by more than 332 000 out of a possible 363 190 Idaho
homes and businesses. Cable One states that all equipment listed was purchased and installed
between January 1 2005 and December 31 2005. The amount of the requested tax credit for
2005 is approximately $353 000.
2006 Broadband Tax Credit Application; Case No. GNR-07-
On September 17, 2007, Cable One filed an Application for broadband tax credit for
calendar year 2006. As in the previous year s Application, answers to Staff s request for were
delayed.
In this Application, Cable One states that its year end 2006 network consisted of
approximately 2,478 miles of aerial coax, 2 735 miles of underground coax and 930 miles of
fiber optic cable and passed by more than 344 000 out of a possible 351,491 Idaho homes and
businesses. Cable One states that all equipment listed was purchased and installed between
January 1 2006 and December 21 2006. The amount of the requested tax credit for 2006 is
approximately $390 000.
STAFF REVIEW
Staff has reviewed the list of proposed broadband equipment submitted by Cable One for
2005 and 2006. Staff notes that some of the itemized investments contained in both Applications
were for expenses associated with the replacement of existing broadband network facilities as a
DECISION MEMORANDUM - 2 -FEBRUARY 4, 2008
result of road or utility construction. These expenses did not necessarily expand the availability
of broadband services to additional subscribers. Staff certifies that the itemized equipment meets
the eligibility requirements for broadband services pursuant to Idaho Code ~ 63-30291, but
remains neutral regarding the qualification of these expenses for broadband tax credit. Idaho
Code ~ 63-30291(b).
Cable One also specifies that the itemized equipment complies with Idaho Code ~ 63-
32091 (3)(b)(iii), which requires that qualifying equipment extends from the subscribers side of
the headend to the outside of the subscriber structure. In the Applications, Cable One explains
how this standard was used to determine the qualifying amount of expenses related to "drop
spending." Because the broadband tax credit applies to relatively new investment, and
considering the number of home and businesses that are built pre-wired with coaxial cable, Staff
believes Cable One s adoption of standard industry practice of an estimate of 60% allocation is
conservative and accepts this estimate.
Staff believes that the itemized equipment on both Applications qualifies as broadband
equipment, but Staff does not take a position regarding the amount of the investment eligible for
the tax credit. Likewise, the Staff takes no position regarding the tax credit for broadband
equipment that replaced existing broadband equipment. Staff feels the Idaho Tax Commission is
best qualified to determine the eligibility of such investments. Staff recommends that the
Commission forward a copy of the original Applications along with an Order certifying that the
equipment meets the qualifications for broadband tax credit, to the Idaho Tax Commission.
COMMISSION DECISION
Should the Commission approve Cable One s Applications for the broadband investment
tax credit for calendar years 2005 and 2006?
Grace Seaman
i:udmemos/CableoneBTC - 2005 - 2006
DECISION MEMORANDUM - 3 -FEBRUARY 4, 2008