20040830_919.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:DOUG COOLEY
DATE:AUGUST 25, 2004
RE:CABLE ONE'S APPLICATION FOR BROADBAND EQUIPMENT TAX
CREDIT; CASE NO. GNR- T -03-25.
BACKGROUND
On July 20, 2004, the Commission received an Application from Cable One, Inc., to
receive an investment tax credit for eligible broadband equipment pursuant to Order No. 28784
and Idaho Code ~ 63-30291(4). To be eligible for the tax credit, the taxpayer must apply for and
obtain from the Commission an Order confirming that installed equipment qualifies for the tax
credit.
DISCUSSION
Cable One stated that, during calendar year 2003 , it installed coaxial cable and fiber
optics as part of its "Hybrid Fiber Coax Network" (HFC) in and around the areas of Boise, Idaho
Falls, Lewiston, Twin Falls, and Pocatello. According to its Application, Cable One s network
offers high-speed data services using fiber optic receivers and transmitters, Motorola RF network
amplifiers, signal equalizers, and couplers and taps. In addition to the electronics, fiber optic
cable, and coaxial cable, Cable One also included in its Application its labor costs and the
supporting hardware such as connectors, conduit, splicing equipment, and enclosure materials.
The amount of the requested tax credit for 2003 is just over $348 000.
Cable One states that it offers high-speed Internet and broadband services to homes and
businesses in Idaho at upstream and downstream transmission rates of 128 kbps to 1.5 Mbps.
Cable One s network in Idaho consists of approximately 2 447 miles of aerial coax, 1 877 miles
DECISION MEMORANDUM AUGUST 25, 2003
of underground coax and 524 miles of fiber optic cable and passes by over 290 000 Idaho homes
and businesses.
STAFF REVIEW
Staff has reviewed the list of proposed broadband equipment submitted by Cable One and
believes that the equipment identified qualifies for the investment tax credit pursuant to Idaho
Code ~ 63-30291. Cable One also specified that the listed equipment complies with Idaho Code
~ 63-30291 (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 case of the headend equipment, the CMTS separates the digital signals from other
programming on the cable network and converts them into IP packets for routing to an Internet
Service Provider and onto the Internet in much the same way that splitters and Digital Subscriber
Line Access Multiplexers (DSLAM) do on a telephone network.
In the case of the drop equipment, Cable One keeps one account for expenses related to
the drop line between the utility pole (or pedestal) and the cable modem inside the subscriber
premises. Understanding that the broadband tax credit only applies to expenses up to the outside
of the structure in which the customer is located, Cable One estimated 60% of its expenses to be
associated with the drop line between the utility pole and the outside of the customer s structure.
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 estimate is conservative and accepts its 60% allocation. Therefore, Staff recommends
approval of the Company s Application and further recommends that the Commission forward
the approving Order along with a copy of the original Application to the Idaho Tax Commission.
COMMISSION DECISION
Should the Commission approve Cable One s Application for the broadband investment
tax credit?
/4 ~fr-ug Cooley
udmemos/dcooley/cable one 3
DECISION MEMORANDUM AUGUST 25, 2003