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Critics take aim at Microsoft schools deal

The computing juggernaut's proposed settlement of private antitrust lawsuits--giving software to schools--goes before a federal judge Tuesday. Critics say it's not about charity, but monopoly.

By Matt Loney

As Microsoft's proposed settlement of private antitrust lawsuits goes before a federal judge Tuesday, critics see more harm than good resulting if the deal goes through.

The Computer and Communications Industry Association, for one, says that acceptance of Microsoft's $1 billion offer would be tantamount to judicially sanctioned predatory pricing.

Microsoft's proposed settlement for more than 100 outstanding private antitrust cases against it would inflict "great harm" upon the technology markets, the CCIA said in a letter to the judge overseeing the case. The CCIA was responding to Microsoft's offer to provide $1 billion worth of hardware, software and training to more than 12,500 schools serving nearly 7 million children.

The software behemoth sees things differently.

"It is a settlement that avoids long and costly litigation for the company and at the same time...really makes a difference in the lives of millions of schoolchildren in some of the most economically disadvantaged schools in the country," Microsoft Chief Executive Steve Ballmer told reporters last week.

A hearing gets under way Tuesday, at which U.S. District Judge J. Frederick Motz will hear arguments to decide whether the proposed settlement will be of benefit to schoolchildren or will simply further Microsoft's monopoly.

Microsoft said it would take a $550 million charge in the current fiscal quarter if the court approves the pact. Earlier this month, the company agreed to settle its separate, three-year case with the Justice Department and many--but not all--of the state attorneys general who had sued the company.

According to the CCIA's president and chief executive, Edward Black, a ruling in favor of Microsoft's settlement would be disastrous. The 30-year-old nonprofit organization has been active in many antitrust cases and is an official intervener in the European Commission's antitrust investigation into Microsoft. It represents technology companies including Sun Microsystems, Oracle, America Online, Nortel Networks, Nokia, Fujitsu, NTT, Yahoo and Intuit.

In the letter, Black says that any court-ordered distribution of free software would be tantamount to judicially sanctioned predatory pricing by a monopolist in a critical market.

What's more, says Black, for a company that generates profits of more than $1 billion each month and that retains cash holdings of approximately $35 billion, the expenditures called for in the settlement are "nothing more than a hiccup on the balance sheet--a negligible cost of doing business."

The marginal cost of providing free software is virtually nonexistent, notes Black, because most of the costs in producing


Laura Allen, president of Vision Education, says schools don't benefit from Microsoft's private settlement.

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software are attributable to the development costs. Production costs--particularly in the age of the Internet--are miniscule. "Therefore, forcing Microsoft to provide free software to schools can hardly be considered a significant punishment," he said.

The financial insignificance of Microsoft's proposal was also picked up by Linux distributor Red Hat Software, which offered to provide free software to every school district in the United States if Microsoft would provide the hardware to run it on.

The Linux operating system is free--though companies like Red Hat offer it as a packaged product too--and thousands of applications, many of which are also free, are available to run on it. The latest versions of the operating system have gone a long way to dismissing past criticisms that it is not user-friendly, and Linux has always enjoyed a reputation for stability--unlike Microsoft Windows.

"Under the Red Hat proposal, by removing Microsoft's higher-priced software from the settlement equation, Microsoft could provide the school districts with many more computers--greatly extending the benefits Microsoft seeks to provide school districts with their proposed settlement," said Red Hat in a statement.

Red Hat contends that if Microsoft redirected the value of its proposed software donation to the purchase of additional hardware for the school districts, "this would increase the number of computers available under the original proposal from 200,000 to more than one million, and would increase the number of systems per school from approximately 14 to at least 70."

Red Hat also pointed out that unlike the Microsoft proposal, which has a five-year time limit, at which point schools would have to pay Microsoft to renew their licences and upgrade the software, the Red Hat proposal would have no time limit.

The CCIA's Black notes that in part through the use of illegal, anticompetitive tactics, Microsoft has come to dominate many of the most critical software markets, including operating systems for PCs (Windows), browsers (Internet Explorer) and personal-productivity software (Office).

Microsoft's market share in the operating system, browser and office-suite markets is upward of 90 percent, but the company has faced some competition in the market for client operating systems in the education sector, most notably from Apple Computer.

Access to this market is considered key to attracting and retaining users for future sales, noted Black.

"By allowing Microsoft to flood the education market with free software--at virtually no cost to the company--the court will be virtually assuring that no other competitor will be able to charge for its products," he said. "The foreclosure of this market to competition and consumer choice will only facilitate the continuation of Microsoft's unlawful monopolistic strategy."

Staff writer Matt Loney reported from London.