House of Commons - Transport, Local Government and the Regions

Select Committee on Transport, Local Government and the Regions Tenth Report

TENTH REPORT

The Transport, Local Government and the Regions Committee has agreed to the following Report:

ORDNANCE SURVEY

In accordance with our remit to examine the executive agencies of the Department for Transport, Local Government and the Regions (DTLR), the Urban Affairs Sub-Committee visited Ordnance Survey's Headquarters in Southampton in January 2002, and took evidence from the Director General in a one-off evidence session. During the course of this session wider issues emerged, and the Sub-Committee decided to lengthen the inquiry. The terms of reference of the inquiry covered:

— Ordnance Survey's pricing structure in relation to copyright charging, the current pricing model's effect on planning appeals, licence fees for guide books, the cost of updating and maintaining databases, the effect of new technology on costs.

— The provision of maps for electioneering, the funding of this, and the Data Protection implications.

The Sub-Committee's visit to Ordnance Survey (OS) took place shortly after the publication of the Stage 1 report of the department's Quinquennial Review of Ordnance Survey, which recommended that it be transformed into a Government Owned Public Limited Company (GOPLC). Ministers and OS have responded with enthusiasm to this proposal. The memoranda received by the Sub- Committee and the evidence taken during the visit to OS highlighted a number of issues requiring further examination. The Sub-Committee was not convinced that the Quinquennial Review had adequately addressed these wider issues: for example, the dual role of OS as a public service provider and a commercial organisation[1] : the boundaries between OS's operations and those of its licensed partners:[2] the difficulties caused in pricing and copyright negotiations by OS's dominant position in the market: and the availability and cost of OS data. The Sub-Committee decided to hear at first hand from some of the witnesses who had raised these concerns, and from the responsible Minister at the DTLR.

The Quality of Ordnance Survey's Maps

There is little doubt that OS's maps are extremely popular and are of a high quality. OS represents a trusted brand both nationally and internationally. As the Director General noted in evidence:

"The Ordnance Survey brand is known throughout Great Britain and in fact throughout the world".[

OS generally exceeds international comparators, particularly in its 1:25,000 scale range and other maps used for walking. The Association of Geographic Information (AGI) confirmed OS's prominent international position in its submission:

Indeed the United States Geographical Survey has often sent staff to OS to learn the secrets of its success.[5]

New Technology

In the 1980's OS's experiments with new technology were less than successful. OS is not at the cutting edge of technology, indeed the Minister stated in evidence:

"OS does not want to be at the cutting edge of technology because you sometimes need to be a little bit removed from it".[

However, these earlier digital experiments have paved the way for recent technological advances. For example, the current MasterMap project promises to be an:

The MasterMap will eventually provide a bank of data of varying types which will be useful at many different levels. It will constitute a valuable national asset.

The Availability of Geographic Information - public access and charging policies

OS produce a bewildering range and variety of products for different and often highly specialised markets. The paper maps for which OS is most well known for amongst the general public make up only a small fraction of its work, and produce just 7.5% of its annual revenue.[8] OS pricing policy is based on the classification of data products into large scale products, business geographics products and other products.[9] OS provided detailed information about its pricing structure and has made price lists available on the Internet as part of its attempt to ensure that its policy in this area is transparent.[10] OS charges typically cover charges for the use or reproduction of a set of data . Prices for business products and datasets are based on either an annual licence or in some cases on the number of computer terminals given electronic access to OS data. Use of data on the Internet is covered by an Internet licence fee which is the same as the price for the use of a product on a single computer terminal.[11] Pricing can be complex, although OS maintains that it has simplified its charging policy.[12] For some digital products there can be an initial charge, a data maintenance fee and a copyright fee. Some services are provided free on the Internet through the OS or other websites: but this is unlikely to be sufficiently detailed to be of use to commercial companies.

The high cost of OS data, and the effects this has on its accessibility to users, was raised by many witnesses, including both small and large OS customers. The Association of Geographic Information (AGI) states that high prices have caused many problems, especially for small organisations and companies, hampering the development of:

English Nature complained about the effects of the high costs of data. It criticised the:

The Herpetological Conservation Trust and the Bat Conservation Trust have told the Committee of the lack of freely available, good quality data and have stated that currently:

The Ramblers Association have informed us that the cost of larger scale paper products puts them out of their reach and that of other similar organisations.[16] The Central Council for Physical Recreation (CCPR) suggested that the OS copyright regime restricted the free flow of information to public and voluntary bodies.[17] The British Library complained that OS have been inconsistent in interpreting the 1988 Copyright Act.[18] Other witnesses told us that annual licence fees for data can be prohibitively expensive; it was argued that landscape planners should be able to buy data for limited time periods.[19]

Larger customers of OS have also raised concerns. Utilities companies, who provide 23% of OS's revenue, have worries about new charging mechanisms. According to the memorandum from the Joint Utilities Group, the advent of digital mapping and Master Map are likely to mean 25-50% price increases for a type of information that utilities rely on.[20] Unless the utilities increase prices to cope with OS price rises, they will have to look for alternative means of mapping their assets. They will scarcely be able to justify higher prices to consumers without any increased business benefit.[21]

There is doubt as to whether high prices are justified by the costs to OS of data collection. Witnesses highlighted the reduction in the costs of surveying. What is more, much survey data is now collected "second hand" from developers and local authorities. Some, although by no means all, local authorities regularly update geographic data.[22] Updating data is therefore at least partially funded from the public purse:

OS have put up prices for their small scale paper maps such as the Explorer range. This was not an issue that witnesses raised as a matter of concern. The Ramblers association were wary of further price rises. [24] OS justified these price rises on the basis that 50% of these maps are not profitable and that:

On pricing policy generally, OS emphasised that a number of products used by business customers have recently reduced in price:

"Over the last two years, Ordnance Survey has held or reduced the price of its flagship large scale data products even though the Ordnance Survey investment programme has been extended substantially in the same period".[26]

The Director General of Ordnance Survey said in oral evidence:

"Since September 2000 our data prices have been held and we have seen many prices come down quite considerably. LandLine, which is our large scale database, the precursor to OS MasterMap, had a five per cent reduction in prices; I believe in September 2000 we held the price. For our service level agreement we are under the terms of the agreement able to put the prices up by RPI. We did not do that last year. In our business geographics, they have continued to fall progressively and there are some data sets (a good example being Address Point) where we have completely looked at the market and the way that people wish to use the data and did some renegotiation with our partners in that, who are Royal Mail/Consignia, and now we have dropped the price for a site licence from £800,000 to £120,000 per year".[27]

That Ordnance Survey were able to cut the price in the case of one significant service to business from £800,000 to £120,000 a year simply as a result of renegotiation suggests to us that a similarly vigorous series of renegotiations may prove advantageous to all parties.

OS pricing policy may be affected by proposals currently under consideration by HMSO whereby not-for-profit organisations would have to pay the same rates for public sector copyright information as private sector companies.[28] This could have serious implications for such bodies who currently benefit from reduced rates for OS products.[29]

Conversely, recent proposals from the European Commission may ease these problems in the future. AGI have highlighted the European Commission draft legal framework Towards an EU Framework for the exploitation of Public Sector Information (PSI) published in January 2002 that seeks to enhance access to public sector data .[30] This and other European initiatives such as the EU Draft Directive on Public Access to Environmental Information and the EC Director General Initiative INSPIRE (Infrastructure for Spatial Information in Europe), are intended to assist individuals and smaller voluntary bodies in gaining access to data. The Minister told the Sub-Committee in writing :

The European proposals were not considered at Stage 1 of the Quinquennial Review but will be looked at in Stage 2.[32]

In Britain, clear accurate maps are necessary to so much of modern life and are an essential tool to an effective democracy. In making maps available for such purposes, it is reasonable for Ordnance Survey to charge the full cost of providing the maps whether on a web-site for downloading or in paper form. But the Ordnance Survey should not be seeking to obtain a return from provision of these services in order to cover its general overheads nor to contribute to the costs of map data collection.

Mapping in the National Interest

Government funding is provided to support some of OS's activities which are not commercially viable but are in the national interest.[33] These activities include revision and maintenance of rural mapping which would be needed in case of emergency (e.g. the Foot and Mouth crisis). Such non-commercial activity is largely funded under the National Interest Mapping Service Agreement (NIMSA), at an annual cost to Government of around £14 million.[34] Some witnesses suggested that NIMSA funds should also be used to fund the production of paper maps to allow prices to remain low; but OS were concerned that subsidy of these products would breach UK and European competition law[35] There were also allegations that OS used NIMSA funds to fund commercial activities. OS strongly denied that there was any cross-subsidy and explained in evidence that NIMSA funds were not used specifically for products or services, but rather contributed towards maintenance of OS's database.[36] There is plainly a need for greater transparency in the way that Ordnance Survey uses the public funding passed to it under the National Interest Mapping Service Agreement, so that all parties can be satisfied that it is being used as intended.

Witnesses told the Sub-Committee that OS data, partially funded by the public and carried out in the national interest, is not used to its full potential by Government bodies and Agencies. DTLR has noted that 80% of Government data is spatially related, but that only 40 of a possible 500 governmental bodies actively use OS data.[37] Service Level Agreements (SLA) cover the rates and levels of provision of data, services and products from OS to public sector users.

Four years ago a consortium of fifteen Departments and Agencies joined together in an attempt to maximise their collective bargaining power in negotiations with OS.[38] This produced savings to them of more than £10 million a year. But most departments and agencies either continued with their own SLA or, as in the case of some major Departments such as the Home Office and the Department of Health, had no SLA . There are now plans for a "Pan-Government Service Level Agreement", which the Committee understands was started as a pilot in April 2002. This would bring together all Central Government bodies as a single 'customer' for a single global fee.[39] There could be significant savings.[40] Unfortunately no funding for the Pan-Government SLA has been agreed beyond the end of 2002. Although the value of geographic information has been recognised by the Prime Minister's Office and the Cabinet Office, no source of long-term funding has been identified.[41] The Committee recommends that the Government provides funding for a long-term Pan Government Service Level Agreement to ensure widespread use of Ordnance Survey data across Government, so as to ensure the Government gets the best value for money. This should be done by the start of the 2003/04 financial year.

The Boundaries of Ordnance Survey's Work and its Relationship with its Licenced Partners

OS cannot provide all the geographic data and services needed nationally. Some services and products benefit from being provided by the private sector. OS has a number of licensed partners who develop derived products and re-sell information and data. The evidence suggests that the boundaries between the work undertaken by OS and the work undertaken by its partners needs to be clarified, to avoid further conflict and misunderstanding.[42] There have been conflicts with other geo-data organisations, including some of OS's licensed partners. Some suggest that OS should focus its attentions on its core products leaving its licensed partners to develop derived products.[43] In some cases OS has started to develop and sell products which its partners are already selling, leading to ambiguity for customers.[44] One licensed OS partner claimed that OS had developed a product that the partner had pioneered and then had deliberately excluded the partner from involvement.[45] Some argue the lack of clarity also makes it very difficult for new businesses starting out in the geographic information industry. The possibility that OS may decide to provide a service using its vast resources of legacy data is:

"an important risk factor to be considered by any new enterprise within the GI sector".[46]

Copyright and pricing have long been areas of contention between OS and its partners, hampering these important relationships. In 2001, for example, OS won a £20 million payout from the Automobile Association after a legal battle over copyright. AGI argues that the reasons for such problematic relations lie in OS's dominant position in the market and its obligation to recover its full costs and make a return on capital employed. AGI told the Sub-Committee:

Ordnance Survey and the Minister responsible at the Department both denied that OS has a monopoly position in the market. OS's Director General said :

"we are not actually a monopoly. At large scale increasingly and also at smaller scale for a long time we face competition. The only monopoly area is the work we do in the uneconomic areas that we have talked about which are covered by NIMSA. That is the nearest thing to a monopoly"[48]

Whether or not OS are prepared to accept it they are seen by their customers and partners as a de facto monopoly. The problems OS has experienced with its customers and partners are undoubtably linked to its powerful market position and its participation in both commercial and public service/national interest activities.

Some have suggested radical measures to help soothe the situation. AGI have noted in their memorandum that:

Accepting that it would not be simple to break down OS's activities into clear categories ,it warned that the disputes between OS and its partners threatened to tarnish an otherwise excellent reputation. Unfortunately, the Quinequennial Review failed to address this problem, which has been at the root of may of the complaints about OS received by the Sub-Committee. The Committee concludes that there is a clear need to define the boundaries of Ordnance Survey public service and national interest work. If Ordnance Survey wants to enter into commercial activities we can see no reason why it should not do so, but the two activities ought to be separately accounted for and its commercial arm should pay the same copyright fees as any other organisation/competitor.

An Arbitrator/Regulator for OS

The establishment of some sort of regulator or arbitrator could reduce the number of cases where OS is in conflict with other organisations, and provide a channel for grievances to be dealt with short of recourse to legal action. Some companies may be sensitive about complaining about pricing or business practice when OS is the monopoly provider of the raw data on which they depend.[50] Many of those who submitted evidence to the Committee were aggrieved, and some highlighted OS's difficulty in acting as regulator, supplier and competitor. There was concern about the involvement of OS in joint ventures which benefit from OS's "de facto monopoly status". Some have argued that the fact that OS participates in joint ventures with other parties concerning the supply of "non-core" services to an end user means that some companies are in direct competition with their supplier/licensor.[51]

In September 2000 the Cross Cutting Review of the Knowledge Economy was accepted by Government. It recommended that a "re-positioned" Her Majesty's Stationary Office (HMSO) should be established as a regulatory body to oversee Crown Copyright. There is currently a consultation process is currently underway to determine the exact role and scope of the repositioned HMSO. AGI told us that:

AGI highlighted the proposal in the discussion document that there should be full transparency of trading fund pricing policies and are concerned:

This is an example of the contradiction facing OS as a public service provider and commercial organisation as it may be asked by HMSO to distribute its main product, data, below cost. Obviously this would be at odds with commercial objectives.

Regardless of the outcome of the consultation process about the regulatory role of HMSO, the question of arbitration of disputes between OS and its partners and customers will remain.[54] Ordnance Survey are opposed to increased regulation and have stated:

"Whatever the theoretical benefits of regulation, they must be set against the costs of administration as well as possibly, the drag they may apply to the market by hindering the response of businesses to emerging opportunities . This is likely to present a significant obstacle in the case of geographic information, since the regulatory overhead would be very high in relation to market value".

The Committee is not convinced by this argument. In light of the evidence received and the volume of current and past legal action between Ordnance Survey and its partners, there is a clear need for some form of independent arbitration so that conflicts could be resolved without going to the courts. The exact form of any regulator obviously needs to be considered in some detail but there is also a clear need for some form of regulation, if only to arbitrate cases of dispute.

Advisers to Government

Both AGI's memorandum and a recent article in Geographic Information News highlight a possible problem with OS's role of official adviser to government on geographic information.[55] Government takes advice on issues such as the need for a definitive national source of information (national spatial data infrastructure) to avoid confusion such as that caused by the lack of standardisation of street names between the various national databases such as the National Street Gazetteer and the Royal Mail Postcode Address File. Some have been understandably concerned about a possible conflict of interest in OS's role of advising Government on such matters where OS is a key player in what it claims is a competitive market. As Robert Barr, one time Chairman of the AGI highlighted:

OS have said that they understand some of the reasons underlying the views expressed by AGI and others.[57] OS has recommended a possible solution to the problem:

This is a very sensible proposal. The Committee recommends that a panel of at least three advisers is established to advise Government on geographic information issues in order to avoid any possible conflicts of interests. Membership of this panel should include the Chairman of AGI, the Director General and Chief Executive of Ordnance Survey, and one or more representatives of the private sector.

The Way forward for OS - Transition to Government Owned PLC?

The Quinquennial Review of Ordnance Survey published its Stage 1 report in December 2001. This recommended that OS evolve into a Government Owned Public Limited Company (GOPLC) with government owning 100% of the shares. The Review considered other options for OS and found that:

"Whilst operation as a Trading Fund is proving a successful step forward, the additional commercial freedoms offered by GOPLC are considered essential if the organisation is to drive out further performance improvements, achieve greater agility in the market place, and so deliver its full potential".[

The responsible minister at DTLR responded in a written answer that:

^st

Ordnance Survey welcomed the recommendation in a News Release which quoted the Director General and Chief Executive:

When asked in oral evidence, OS stated that the main reasons for its support of the move toward GOPLC status were

—extra flexibility to pay higher salaries thus attracting well-skilled staff.[62]

It is likely that OS will become a GOPLC by 2003. We understand that the Minister is to make an announcement on the findings of Stage 2 of the Quinquennial Review before the 2002 Summer recess.

There is nothing to suggest that the proposed change to a GOPLC would address the problems of OS's status as a commercial and public service provider in terms of cost recovery, regulation, costs, competition and the boundaries of OS business: nor that the issues of borrowing money or rewarding staff are such as to be solved by a change in legal status. As the Director of AGI put it:

Consignia , which recently became a GOPLC, is cited in the Quinquennial Review as an example where:

Recent examination of Consignia by the Trade and Industry Committee indicates that conversion to a GOPLC has not resolved the tension between public service obligations and commercial operation.[65] Indeed, it seems that the tension has only been further compounded by GOPLC status; Consignia must provide a key public service but is obliged to provide a return to its shareholder, the Government, even during financial difficulty. Basing the evolution of OS on the Consignia model could prove to be a dangerous misjudgement.

We are also aware that mapping agencies in other countries that are operated on a commercial basis have experienced problems. For example, mapping by the national mapping agency of the United States, for which state funding is not guaranteed, has often been out of date and has generally been less detailed than that generally offered by OS.[66]

Transition to GOPLC may be a step towards privatisation. The Quinquennial Review considered the option of privatisation and found that it was unsuitable for a variety of reasons. These included:

However, the Review also recognised that conversion to GOPLC could be seen as a first step to privatisation, stating that there are some models of "Incorporated Organisation" that can be seen as "precursors to potential partial or full privatisation".[68] Even though the Review does not see the GOPLC model as a necessarily a step towards privatisation, it is always possible that the Government could consider selling some or all of its shares at a later date. The review stated in its discussion of the privatisation option that "Full privatisation requires an initial change of status to Government Owned PLC and a further move to sell the government shares".[69]

The Committee is strongly opposed to Ordnance Survey's proposed transition to Government Owned Public Limited Company and sees no case at all for change from its current status. Ordnance Survey has experienced no problems with borrowing while operating as a trading fund. The Committee finds it hard to believe that the only way to pay staff better is by becoming a Government Owned Public Limited Company. The broad problems affecting Ordnance Survey, such as the definition of its boundaries of work, will not be resolved through transition to Government Owned Public Limited Company. It is inadvisable to impose on Ordnance Survey a legal framework designed for a commercial organisation, without a proper assessment of what the role of a national mapping agency should be and the extent to which it should be involved in commercial activities. The Committee recommends that the Government rejects the option of making Ordnance Survey into a Government Owned Public Limited Company.

1 See for example OS07 Back

2 See for example OS13, OS14 Back

3 Q2 Back

4 OS13 Back

5 OS13 Back

6 Q300 Back

7 OS22 Back

8 OS22 Back

9 OS22 Back

10 See OS22a Back

11 OS22a Back

12 OS22 Back