Microsoft $1bn schools offer 'would inflict great harm'

The Computer and Communications Industry Association says that if Microsoft's $1bn offer is accepted it 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, 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."

Think it's all over? The antitrust case against Microsoft can still go back the to Court of Appeals, and then there's the European Commission's investigation... See ZDNet UK's DoJ/Microsoft News Section for the latest headlines.

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