Location: http://news.zdnet.co.uk/story/0,,t269-s2099920,00.html 
Microsoft $1bn schools offer 'would inflict great harm' 

Matt Loney  

Microsoft's proposed settlement for more than 100 outstanding private
antitrust cases against it would inflict "great harm" upon the technology
markets, said the Computer and Communications Industry Association (CCIA)
in a letter to the judge overseeing the case.

The CCIA was responding to Microsoft's offer to provide $1bn (£700m)
worth of hardware, software and training to more than 12,500 schools
serving nearly seven million children.

"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, at which US 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, begins on
Tuesday.

According to the CCIA's president and chief executive, Edward Black, a
ruling in favour of Microsoft's settlement would be disastrous. The CCIA
is well-positioned to comment on such matters. The 30-year-old non-profit
organisation 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, Oracle, AOL,
Nortel, 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 upwards of
$1bn each month, and retains cash holdings of approximately $35bn,
disgorgement of $500m is "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 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."

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 US 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 Edward Black notes that largely 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 upwards 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.

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."

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