CAL STATE HIGH-TECH DEAL FALLS THROUGH; PRIVATE BACKERS CITE LOW PROFIT POTENTIAL.

Byline: Laurie Flynn The New York Times

California State University, the United States' largest college system, has scuttled a much-disputed plan to accept a $300 million investment from a group of high-technology companies to upgrade the university's networks and other technology infrastructure.

The proposal, the California Educational Technology Initiative, officially was canceled last week when GTE, the lead company in the proposed partnership, announced that it would not participate, because it could not reach agreement with the university on the financial terms of the deal.

``We had difficulty developing a plan that would allow the project to pay for itself,'' said GTE spokesman Larry Cox.

In May, Microsoft Corp. and Hughes Electronics, a unit of General Motors, said they were pulling out of CETI for similar reasons.

A Microsoft executive said that on closer evaluation, the company had decided that the debt burden was simply too large and the risk too high.

Cancellation of the deal also ended the participation of the fourth partner, Fujitsu America. In exchange for their investments, the four companies had been promised revenue opportunities from services and products like software and pager accounts sold to students and faculty.

The CETI plan had been intensely debated since it was announced last fall. Top university officials consistently praised the proposal, but some students and staff members attacked it as anti-competitive and called the notion of a private investment a threat to the principles of public higher education.

Some criticism focused on Microsoft's role in the consortium, given the Justice Department's antitrust suit against the software giant.

Some critics said that handing over the university's entire computing business to a private entity could turn the campuses into training grounds for certain products, promoting, for example, the use of personal computers running Microsoft Windows over Apple Computer's Macintosh, or giving Microsoft's Explorer Internet browser dominance over the Netscape Communications Corp.'s Navigator.

Last fall, student groups held rallies on several campuses, with some saying

that the plan would lead to ``Microsoft University,'' and in January the Legislature held a special hearing on CETI. Throughout this time, CETI representatives said its critics were misinformed about how the consortium would work, and argued that the plan was a reasonable solution for the financially troubled educational system.

Chancellor Charles Reed said that the university had adequately addressed all the critics' concerns and that the only remaining stumbling block was financial.

``This fear that somehow private industry would take over intellectual property was just unfounded,'' said Reed, chancellor of the 23-campus system since March. ``They didn't care one bit. Their only concern was their profits.''