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Microsoft college deal postponed

California State University officials postpone a deal that would make the system a business partner with Microsoft and three other firms.

Before being grilled by state lawmakers yesterday, California State University (CSU) officials said they are postponing a deal that would make the system a moneymaking business partner with Microsoft and three other companies.

The announcement was made at a packed hearing on the issue held yesterday by the State Assembly's Committee of Higher Education, which was called after heated protests against the plan from faculty members and students as well as Microsoft foes. Final approval of the deal has been pushed back to March, although it was slated to be sealed by the CSU at the end of this month. The committee also said it plans to hold another hearing on the proposal in the meantime.

Legislators, students, and faculty still have questions about whether the proposal will make the vendors the dominant providers of technology to the world's largest university system.

"While CSU claims other companies will be able to compete for business if a CSU campus wants their products, I have strong concerns about the exclusivity of the arrangement," Rep. Ted Lempert of Palo Alto, who chairs the committee, said in an interview.

As reported by CNET's NEWS.COM 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.

The structure of CETI is the brainchild of the corporations, but is the result of CSU's request for proposals to help finance a much-needed $300 million high-tech face-lift for the 23-campus system by the year 2000. In return for their seed money, the companies will get to develop new revenue streams by selling telecommunication and computing services to the system's 350,000-person community--bringing in an estimated $3.8 billion over the next decade, according to CSU.

Many educators worry that the deal will limit choice and academic freedom, as the companies' original business plan promised to create educational content. Student groups at CSU campuses in San Francisco, Sonoma, and Humboldt also have protested CETI because they say it will "privatize" their public education, and has been pushed through too quickly over the past seven months.

And, citing the Justice Department's recent antitrust allegations against Microsoft, rivals of the giant software maker say the deal will secure the company's position as the favored operating system and application provider to CSU, and could close off competitors' direct access to the system.

"Apple's bottom line is that we want to be able to sell directly to the CSU at the lowest price. We were concerned that if CETI comes between Apple Computer and the CSU, we wouldn't be able to do that," Michelle La Vally, a representative for Apple who attended the hearing, said today. "We're glad to hear the CSU has pushed back the deadline so we can get more information."

Both Apple and Netscape were apparently not eligible to submit proposals to CSU last year on grounds that they didn't meet the nine criteria for being selected, including generating at least $4 billion in annual revenue.

The CSU and Microsoft contend the deal would not limit choice.

"We firmly believe that choice is a big part of this agreement," said Chuck Dietrick, Northern California general manager for Microsoft. "Nothing prohibits the participating schools from using the hardware or software that they prefer."

The assembly has never formally reviewed CETI, according to Lempert, so the hearing was strictly to gather data and opinions. The committee wants to determine whether CETI is the best route for CSU or if there are other alternatives. Lawmakers also wanted to know if the deal would "lock" CSU into a technology plan that it can't get out of down the line should the CETI deal end up being too costly or in some other way undesirable.

Representatives of CETI tried to address these concerns during the hearing.

"The biggest misconception is that the CSU will only be buying products that are made by the four partners, and that is quite wrong. We will continue to support the acquisition of Macintosh products, for example," Tom West, the CSU's assistant vice chancellor of information resources and technology, said today.

"There is another misconception that we'll get locked into a technology," he added. "But this is designed to generate revenue so we that don?t get locked into outdated technology. In order to do this, we need to have a long-term relationship."

West said the CSU 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.

But the details of the deal are not yet final, and continue to evolve.

For example, when the "GTE Team" submitted the CETI proposal in June, it outlined 50 "revenue-producing services." And according to the CSU invitation, the four companies would be the "exclusive providers of technology" of baseline technology to give students and faculty better access to the university system's intranet, the Internet, desktop computers, and software programs that are standard throughout the campuses.

Microsoft stated in the initial proposal that it wanted its "products to be the solution of choice for operating systems and application software. This is an opportunity to take our existing products and services and sell them to geographic areas and new customer segments."

The CSU is now emphasizing its ongoing position that the partners would have to help buy their competitors' products when the need arose.

According to a December draft of the three-year plan to enhance the CSU 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

Under this plan, however, CSU made it clear that Microsoft's Internet Explorer Web browser would not replace its now-favored Netscape Navigator browser.

"For application software, we recommend that all Windows/Intel and Macintosh personal computers used in the CSU include installations of the latest versions of Microsoft Office for basic productivity tools, and the latest versions of both MS Internet Explorer and Netscape Communicator for communication and groupware access," says the latest CSU draft. "Since Communicator is so popular, useful, and free for education (except for the "Pro" version), we recommend its inclusion."

Nonetheless, CETI foes know all too well Microsoft's plans to integrate Explorer and Windows. They say this could eliminate the inclination to use Netscape's products.

Resolutions to these concerns will not come easy. Even though the Higher Education Committee has given the public a bigger forum to debate the CETI proposal, it is not expected to provide the magic formula.

"The legislature doesn't have direct control over the internal operations of the CSU," Lempert said. "Legislation could be introduced on this issue, but I'd rather have the CSU come up with a plan. The best alternative would be for the public to put up the money up front."

Still, CSU officials say that is an unrealistic option, which is why they sought help from the private sector in the first place.

"No one on the committee offered that as a possibility yesterday," West said. "This is about supplementing state resources."