January 22, 1998 2:30 PM PST

MS college deal under fire

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California lawmakers are charging that the state's university system shut out a slew of high-tech vendors when drafting a moneymaking deal with Microsoft (MSFT) and three other vendors.

In a letter sent yesterday to incoming California State University (CSU) chancellor Charles Reed, two Assembly members called for more public debate on the ten-year plan, which has been under fire because it could make the vendors the exclusive providers of technology to the system's 23 campuses.

"The state is looking at the possibility of joining the other states in an antitrust lawsuit against Microsoft," Assembly member Debra Bowen, who cowrote the letter, said today in an interview. "Why would we, at the same time, give Bill Gates the keys to the entire CSU system for ten years?"

As reported in November, Microsoft, GTE, Fujitsu, Hughes Electronics, and CSU plan to create a for-profit "limited liability" company known as the California Education Technology Initiative, or CETI. Under the deal, the companies will help finance a $300 million high-tech face-lift for the 23-campus system by the year 2000. In return, they'll get to develop new revenue streams by selling outside communications services to the system's 350,000-person community--bringing in an estimated $3.8 billion over the next decade, according to CSU.

Pointing to the Justice Department's antitrust allegations against Microsoft, CETI foes say the plan will limit choice, and has been crafted with little public input.

Bowen and Assemblyman Jim Cunneen's letter echoed the major concerns. "We are especially concerned that as proposed, CETI may lock the state into technological solutions that are likely to become obsolete before the term of the agreement runs out," they wrote. "We believe you will agree, in hindsight, that more of a public process is necessary for a broad buy-in for a proposal of this scope and strategic importance."

The CSU contends that its partners will support the acquisition of competitors' products based on individual campuses' needs. The system also is creating a commission, which will include faculty and a student, to review all purchases and products created by CETI. Overall, CSU will have a 20 percent capital stake in the new partnership.

However, both Apple Computer and Netscape Communications were never invited to submit proposals to CSU, for example. Both companies testified during last month's hearings.

"One of the objectives stated in CSU's explanation about this was to give the partnership the ability to leverage the student, faculty, and staff list to leverage their products," Bowen added. "If you're using one kind of system at work, it makes it difficult to go home and use something else because they aren?t compatible. There is going to be a big bias toward buying the [four vendors'] products if this goes through."

The proposal has been in the works for less than a year, and the details about the revenue plan are still sketchy. The deal would have been sealed before Reed--whose predecessor supports the formation of CETI--came on this month. However, the CSU suddenly pushed the deadline back to March.

According to a December draft of the initial three-year plan to build out the CSU's technology infrastructure, Microsoft products will continue to be the primary software and operating system for the university system under the CETI agreement. Microsoft Windows NT Workstation 4.0 and Windows 95 were slated as the operating systems for Intel PCs. CSU made it clear that Microsoft's Internet Explorer Web browser would not replace its now-favored Netscape Navigator browser.

During a hearing next month, for which no date has been set, CSU will be hard-pressed to clear up all questions about CETI that were raised at the Assembly's Committee of Higher Education public hearing on the issue earlier this month. If concerns remain, observers doubt the deal will be sealed as it stands.

"I've been involved with public-private partnerships, and usually the partners are enthusiastic about answering questions, but they weren't [at the last hearing]," Rep. Ted Lempert of Palo Alto, who chairs the committee, said in a past interview. "My concern comes from CSU being naive about setting up a new cooperation."

 

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