Companies Dig for California Gold

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Companies Dig for California Gold

By Neil Munro
Staff Writer

"[The project] will help universities boost efficiency and fend off a potential industry-led takeover of the education business...."
-Molly Broad
California State University System

California's 23 state universities are looking for a friendly business consortium to help them survive, and perhaps even prosper from the information revolution.

In September, the presidents of the 23 California state universities are scheduled to accept one of several precedent-setting contract offers being prepared by rival consortiums led by IBM Corp. of Armonk, N.Y., Ericsson Inc. of Richardson, Texas, and GTE Corp. of Stamford, Conn. The contract's first phase is worth $400 million; later stages would provide more lucrative opportunities for the bidders.

Industry officials are scheduled to present their offers Aug. 20 to the university presidents for the Joint Venture Partnership Project, which may ultimately allow the companies to sell a wide range of products and services to the 23 universities, 109 community colleges and almost 2 million students.

The project is "both an offensive and a defensive strategy for us," said Molly Broad, an executive vice chancellor at the California State University System in Sacramento, Calif. It will help universities boost efficiency and fend off a potential industry-led takeover of the education business, while allowing the universities to sell their education skills to the world via the Internet, she said.

"It is a very significant contract ... expected to range anywhere from $400 million to a billion dollars over several years," said Bill Kula, an Irving, Texas-based spokesman for GTE Corp.

However, "there are a zillion things that could stop this deal," including opposition from the state legislature or complaints by a losing bidder, said Broad, who will soon take over South Carolina's state university system.

Under the project, the 23 California universities would buy roughly $400 million of new wiring in exchange for a mix of cash and an excellent opportunity to sell computers, software, training services and Internet access to the states' 23 universities and 109 community colleges.

The winning consortium also would get an opportunity to sell its brand name and products, as well as ancillary services such as online banking, to the universities' 350,000 university students and to the equivalent of 1.5 million students at the state's 109 community colleges.

The impending contract reflects increased worry among state-funded and state-controlled universities about the growing role of the information technology industry, led by such giants as Microsoft Corp. of Redmond, Wash., and Oracle Corp. of Redwood Shores, Calif., university officials say.

These companies represent "the monster under the bed," say top university leaders, that could use their expertise to dominate the electronic delivery of information-age education services including university lectures and professional training.

The U.S. banking industry has voiced the same fears, and is spending heavily in research labs and in Congress to develop the technology and pass the legislation needed to offer high-tech banking services, including encrypted online banking. One of the key players in this effort is IBM, which allied with 16 banks in September to form Integrion Financial Network LLC in Atlanta, Ga. The 16 banks claim to have roughly 50 percent of the retail banking business.

State university leaders also worry that prospective students will reject them in favor of private universities that offer more advanced technology.

Many state-run universities are trying to invest heavily in information technology, become more efficient and cooperate with local businesses. This trend will force some painful changes at universities, likely closing many smaller education programs and soon ending the centuries-old tradition of academic tenure, say university administrators.

"The key to the whole deal is if the schools want to be competitive with private schools," Kula said. "CSU has come to these [consortiums] saying, 'We would welcome your help in building our communications infrastructure. ... to allow us to have cutting-edge advantages that will sway prospective students to come to our schools as opposed to private schools.'''

But California officials also want to ace out universities located in other states, partly to attract out-of-state students and partly to offer online education services to out-of-state students and to businesses' employees from Portland, Ore., to Tampa, Fla., to Beijing, China. California officials also are trying to raise their revenues, following years of cutbacks in state funding.

Politicians and university officials in other states, including Michigan and New York, are exploring ways to link their universities and high-tech companies. However, California officials are confident that they are in the lead, partly because the state universities usually need approval from the state government for any major deal.

"It would be very hard for anyone to catch up" with California's effort, said John Welty, president of California State University at Fresno. Also, California's Gov. Pete Wilson "is ideologically completely aligned with using the private sector," and has given California universities the freedom to work out a deal with the information technology companies, Broad said.

Reflecting the competition between states, Wilson has refused to participate in the online university project being pushed by the Western Governors Association. Instead, Wilson is instead trying to create a California Virtual University, which will consist of a Web page and aggressive marketing to help California's universities recruit online students worldwide, said Joe Rodota, Wilson's deputy chief of staff. The state's universities are already working with book publishers and cable TV companies to deliver some online education services.

In the race for the forthcoming contract, GTE has allied with Microsoft Corp., Fujitsu Network Communications Inc. of Richardson, Texas, and Hughes Electronics Corp. of Los Angeles. IBM has allied with Lucent Technologies Inc. of Murray Hill, N.J., AT&T of Basking Ridge, N.J., and Pacific Bell, while Ericsson has allied with Sun Microsystems Inc. of Mountain View, Calif., and Oracle.


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