Introduction
The following is a summary of the Business Plan jointly developed by the CETI Team and the CSU SIP Development Team as the basis for addressing the CSU's Technology Infrastructure Initiatives. The summary, which CETI has approved, outlines the fundamental structure of the business relationship being pursued between the CSU and the CETI partners. All provisions of this plan are subject to change pending development of a final agreement on a CSU/CETI partnership.
Summary
Team members GTE, Fujitsu Business Communications Systems, Microsoft and Hughes Global Services accompanied their proposal with firm letters of commitment to SIP from senior management. Two of the team members maintain headquarters in California and all of the partners have a vested interest in a strong educational system within the state. Their proposal follows the recommended outline and responds to the technological initiatives to build-out the infrastructure within three years and generates positive pro-forma net income by the fourth year of the partnership with the CSU.
The GTE Team suggests forming a corporation, the California Education Technology Initiative Corporation (CETI). and beginning activities with a nine-member Board of Directors with the CSU holding the chairmanship. The team states that CETI will make every effort to retain full time CSU employees in their current job classifications and that they were duly impressed during campus visits with the technical expertise and dedication of the CSU employees. The GTE Team forecasts that CETI -Bill spend up to $300,000,000 over the first three years to build out the infrastructure, and an additional $65,000,000 over the next seven years to complete and refresh it. The Business Plan states that the GTE Team will initially fund CETI with $36,000,000 in working capital, acquire lease financing for $120,000,000 and finance an additional $180,000,000 with a proposed bond offering. The GTE Team plan ensures that the required money will be available lo CETI. The GTE Team stated September 15, 1997 that while CETI would sign any borrowing documents for debt to build out the infrastructure; the commercial partners will guarantee these obligations for the infrastructure if required. Pro-forma revenue totals will surpass $350,000,000 annually by the year 2002, which helps justify the team’s commitment to this project. The financing for any debt to build out the infrastructure will be structured so that ultimately the CSU retains control.
Sectional Highlights
Strong letters of commitment from all four team members preceded the GTE Team plan.
The Executive Summary is a concise and direct description of the plan outlined in the broader document. Specific emphasis is placed on:
The GTE Team chose to slightly modify the mission statement proposed by the SIP Development Team. Their alteration replaced the phrase "make money" with the phrase "provide a reasonable return to the shareholders".
The GTE Team value proposition is a direct and accurate reflection of the desires and needs of the CSU. It reflects the value to be derived from the major constituent groups (students, faculty, staff, alumni, community based affiliates, community colleges, K-12, citizenry and industry partners). It focuses on value creation and describes the value as coming from the full partnership, including the CSU, and not from any one partner.
The GTE Team provided a fair and assertive assessment of the state of CSU internal readiness. Their view was campus centric and they describe their approach as "not about stifling or capping past successes of campuses and redistributing assets. Our proposition calls for increasing the telecommunications assets systemwide to reach broader markets and accomplish the objectives of the CSU".
Provides a fair overview of the market potential. More detailed demographic and market segment data will be needed in the next round of implementation planning.
GTE also reiterated that they see no reason for contemplating protest.
The GTE Team focused on the strength of the GTE Team (with Fujitsu, Hughes and Microsoft) as a key strength of their plan. They identify their size and regulatory history as potential weaknesses to the team due to the bureaucratic nature of their internal decision structure, but note they have fon-ned the unit we are dealing with to be more efficient and responsive.
The GTE Team views lack of campus participation as the biggest threat to the success of the partnership but identifies a host of opportunities through leveraging the strengths of the CSU and those of the industry partners.
The GTE Team provides a detailed listing of critical success factors across the following categories:
- Creation of the Partnership (CETI).
- Infrastructure Build-out
- Access, Training and Support
- Revenue Generation
- Requirements Above Baseline
- Operational Support
- Technology Refresh
- Market Penetration
- Employment
- Development of the Final Agreement
Section 1.9 Infrastructure Build-out
The proposed infrastructure build out will be accomplished in three main phases:
- 1998 --- all 22 campus libraries, computing labs, and faculty offices upgraded to baseline infrastructure.
- 1999 --- all 22 campus administrative offices and the complete build out of selected campuses.
- 2000 --- complete build out of remaining campuses and buildings.
Other highlights of the plan include:
- All technologies can scale from the smallest bandwidths (56kbps) to OC-3 and beyond.
- Each campus will have, and help tailor its own "scope of work" plan.
- Desktop objective is for faculty to have access to computing technology less than two years old, students and staff, less than three years old.
- Data centers are out of scope and not mentioned.
- Flexibility in the implementations of the infrastructure build out will be a primary concern to allow campuses to maintain their "individuality" and to self-direct, to some extent, the application and implementation of the new technologies.
- Satellite services will play a key role in the infrastructure build out and the development of remote learning environments.
- CETI will work to significantly improve the desktop environment through the setting of desktop standards, hardware upgrades, software upgrades and improvements in related training an help desk support.
Implications for the CSU: The CSU will achieve its main goal of technology infrastructure build out in three years and have a process and funds to keep it current. This allows the CSU to fulfill its educational mission on behalf of its students and continue to have the tools necessary to be a leader in the field of higher education in California and the world.
The GTE Team developed 50 revenue-producing services called Flagship 50 concentrating in four main areas. Some examples include:
1. Development of Educational Content
- Continuing Education/Certification–California and National
- CSU Competency Exam Review, Courses and Tests
- Preventative Health Services
- Training Programs --- Internal Partnership and General Business Community
- CSU Virtual University
2. Career and Student Development
- Resume and Career Services for Students and Alumni
3. Development of Telecommunications Services
- Student Off-Campus Internet Access (PPP Account)
- Faculty Off-Campus Internet Access (PPP Account) with Enhances Services and Local Access
- Community ISP Service
- Help Desk Services on a 24 hour Basis (Baseline)
- Enhanced Non-Campus Related Help Desk Services
- Development of Video Course Drop Sites for Video-Based Distance Learning
4. Commercial Products
- Phone Service to the CSU
- University in a Box for Campus and Alumni
- DirecTV Distribution
- Prepaid Calling Cards
- Student and Faculty High-Speed Access (ADSL, ISDN)
Implications for the CSU.- By concentrating on core markets, students, faculty, and administration, the GTE Team stays focused on the educational mission and market. By continuing to refine, refresh, develop and deliver goods and services that will generate meaningful revenues and profits, the GTE Team and the CSU will be able to apply, those profits to further infrastructure build-out and technology refresh.
Implementation of the proposed infrastructure during the next 10 years is expected to provide an opportunity to benefit from significant cost reductions in major elements of the CSU budget. The establishment of a ubiquitous telecommunications infrastructure will yield immediate and widespread improvement in system efficiencies. The GTE Team identified $147,318,000 in cost savings from 1997 to 1999 and $258,433,000 over a five-y6ar period. Savings came from Information Technology Expenditures, Infrastructure Deployment, Student Services, and Support Costs. They estimate more and better service with the associated cost savings.
Implications for the CSU. The CSU budgets may then be available for either reinvestment in CETI or the CSU General Fund, in significant amounts.
The proposed entity is a corporation with the percentage of stock ownership still to be finalized and negotiated. CETI as an entity will have a Board of Directors and a Chief Executive Officer with no employees. Subcontractors who will retain their full employment with their respective parent organizations will do all other work. At the completion of negotiations, the newly formed corporation will contractually commit to meeting and supporting the CSU objectives and schedules and will provide the capital to implement the infrastructure and operational support. The revenue stream from on-going operations will fund subsequent capital requirements for technology refresh. The amount of technology refresh will be a negotiated percentage of the operating profits of the corporation. Thus, the more the profitable CETI becomes, the more funds will be available for technology refresh.
The initial mix of capital from the above alternatives will be decided during negotiations. In any event, the GTE Team commits to ensuring that the necessary funds are acquired to meet the infrastructure build out requirements.
Implications for the CSU.- The CSU and its partners are committed to the infrastructure initiatives with strong incentives to generate revenues and a rate of return on investment for the private partners. Together we can build-out of the infrastructure, and begin to leverage the assets and abilities of the CSU and perpetuate a strong regenerative cycle.
The Operations Plan has five major themes. They include:
- Uninterrupted access to the network (infrastructure) including knowledge resources, development, and security, on a 24 hour, 365 days per year basis.
- Appropriate training in using these resources.
- Access to systems, services, tools and utilities.
- Ubiquitous management and technical support
- Overlay the above with strong metrics, e.g. answer help desk calls within twenty seconds, meet or exceed a 99% threshold of availability.
Implications for the CSU: Existing unacceptable standards at the CSU will be raised, helping improve the quality of the educational mission and freeing previously tied-up resources to be redeployed in more productive areas.
CETI maintains retention of the human resources of the CSU as a high priority. As such, they will make every effort to ensure that full time CSU employees are retained in their current job classifications. In addition, they will allow them to maintain an identity with their parent organization and retain their seniority and full benefits.
As previously mentioned, CETI will not have employees and proposes subcontracting as the format for providing services. CETI further stresses a desire to use students whenever feasible in the sense of providing on-the-job training and providing internship programs with industry partners. CETI will also work with the CSU to provide a program of "for Credit" applications which the student employees can apply toward degree requirements.
Implications for the CSU. The GTE Team and the CSU attempt to blend two different cultures and out of respect for each others principles and practices make this work to the strong advantage of all parties within the bounds of the technology initiatives and beyond in the sense that not only is the infrastructure stronger, but the people responsible for it are totally involved and respected
The GTE Team developed an excellent set of risk and risk mitigation strategies. Central to their planning is a set of overarching assumptions that provide the framework for their plan. While none of the assumptions are difficult to envision, they do reflect a concern that the access offered in the CSU value proposition of April 2, 1997 is delivered across all 22 campuses.
Implications for the CSU: The GTE Team has established a very aggressive build-out and refresh program, which should meet the needs of the CSU. The programs are, however, dependent on some unity on the part of the CSU and its 22 campuses. It will be important that the CSU act as one relative to the revenue generating activities and the aspects of the infrastructure which are considered "in-scope " in order to help mitigate the risks and achieve the potential of the partnership.
The GTE Team proposes a four-tier capitalization structure for CETI. More importantly, the GTE Team has committed to work through the capitalization issues with the CSU to assure success of CETI. Highlights of the Business Plan are as follows:
- The GTE Team will invest $36,000,000 into CETI primarily for working capital.
- The second source of capital will be in the form of leases for the infrastructure build out to CETI from an outside company. $120,000,000 will be supplied in this fashion. In this approach,.a company such as the GTE Team will build out a portion of the infrastructure for $120,000,000 and then lease that infrastructure to CETI or CSU (depending on tax advantages) through a financial institution. The GTE Team strategy is that the cabling and physical plant equipment would be the leased portion of the infrastructure.
- The third source of capital will be in the form of bonds issued in a private placement. These funds, in the amount of $180,000,000, will be used for building out the balance of the infrastructure.
- Starting in year four, a technology refresh cycle will begin which will upgrade the infrastructure on a recurring basis
- The GTE Team stated September 15, 1997, that while CETI would sign any borrowing documents for debt to build out the infrastructure, the commercial partners will guarantee these obligations for the infrastructure if required
- The financing for any debt to build out the infrastructure will be structured so that ultimately the CSU retains control of the infrastructure
Implications for the CSU.- The financial plan shows a corporation that generates a positive net income in year four and reaches a cumulative break-even in year five. Cash flow is positive in all years except year two, during the infrastructure build out phase. Income is a reasonable 4.5% to 5% of revenues after projected taxes in later years. The main implication for the CSU is that now the infrastructure is possible and the funds to refresh it are in sight and the CSU can maintain and improve its ability to provide a good education to its students.
The GTE Team proposes to supply the labor and materials necessary to install an industry compliant outside plant substructure system with:
- optical fiber, copper, and bonding cables as well as inside plant including voice and data cabling, voice, data, video and satellite service
- build out the infrastructure over a three year period, additionally note the campuses proposed for build out in Phase 2, in 1999 are: Long Beach, Pomona, San Bernardino, Sacramento, Stanislaus, San Francisco Dominguez Hills, Chico, Northridge, San Marcos, San Jose and WestEd
- Campuses proposed for Phase 3, in 2000, are: San Diego, Fullerton, San Luis Obispo, Los Angels, Monterey Bay, Maritime, Sonoma, Humboldt, Bakersfield, Fresno, and Hayward.
Implications for the CSU. This system, once complete, will support communications technologies for current and future needs at all 22 CSU campuses.