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1 THE ORDNANCE SURVEY INQUIRY MEMORANDUM BY THE OFFICE OF FAIR TRADING 30 May 2007
1 INTRODUCTION: ROLE AND RELEVANCE TO THE INQUIRY
The Office of Fair Trading 1.1 The Office of Fair Trading (OFT) is the UK's consumer and competition authority. The OFT's aim is to make markets work well for consumers. The OFT undertakes this through the enforcement of consumer and competition laws, empowering consumers with the knowledge necessary to make informed choices and proactively studying markets which may not be working effectively. 1.2 Where the OFT conducts market studies, it can recommend action to resolve any problems found. Typically, these recommendations are directed to Government, which is given time to consider the recommendations and respond formally, stating the action that will be taken on the recommendations. The Commercial Use of Public Information Market Study 1.3 In December 2006 we published the report of our market study on the Commercial Use of Public Information (CUPI)[1] which is attached at Annex A. This study is of direct relevance to the current inquiry as one of the public sector information holders covered in the study was Ordnance Survey (OS). Furthermore, given the size and significance of OS to the CUPI study, OS was the subject of a case study undertaken by DotEcon Ltd for the CUPI study. Details of the findings of this and the other case studies can be found at Annex C. 1.4 The OFT undertook a market study in this area for a number of reasons: • The study falls within one of the OFT's priority areas, concerning the interaction between government and markets, specifically, how public sector bodies compete with the private sector. • A previous market study on property searches called for more competition and better access to property information. • The importance and value of public sector information to the economy as a whole. Oral evidence 1.5 The OFT would be willing to provide oral evidence if the committee considers that this would be valuable.
2 EXECUTIVE SUMMARY
2.1 The CUPI study found that public sector information holders are usually the only source of the basic information they hold. As well as collecting information, some public sector information holders, such as OS, operate in commercial markets adding value to develop consumer and business products based on this information. Where they are, or could be, competing with the private sector they have an incentive to restrict access to information provided solely by themselves. We found that the way many public sector bodies operate costs the economy £500 million annually. 2.2 OS is the largest public sector information holder in the UK (by licensing revenue received), and our concerns regarding the competition problems as a result of OS' actions are considerably greater than those for other bodies. 2.3 For example, OS appears to be the only large public sector information holder that does not separate its monopoly and competitive functions in any way, not even in its accounts. This means that OS cannot demonstrate that it is acting fairly, for overall efficiency. 2.4 Furthermore, OS' licensing policy does not allow others to compete with its own products, thus restricting competition in the market. We consider this policy to be more restrictive than is appropriate for a public monopoly such as OS. 2.5 If these two issues could be addressed with accounting separation of OS' different functions and a more flexible licensing policy, this would make OS more transparent. It would give businesses and consumers fair access to OS' data and allow effective competition and innovation to create benefits of more and cheaper geographic information products, while not undermining the continued presence of OS in undertaking its dual role. 2.6 Given the relative size of OS in the public information sector, addressing these issues would lead to a substantial benefit for users of geographic information and for the wider economy in reducing the detriment imposed on the economy by public sector information holders' actions. 3 RELEVANT FINDINGS AND RECOMMENDATIONS FROM THE OFT'S CUPI MARKET STUDY
Key findings 3.1 The CUPI study found that public sector information holders are usually monopolists in respect of collecting basic data and ensuring these are meaningful. There are good reasons why this is the case, such as: high fixed collection costs, government funding for collection and privileged access, perhaps through statutory collection powers. However, there are other activities which some of these bodies engage in which are more suited to be undertaken in a competitive environment. This is when public bodies undertake commercial development of their basic data, creating information-based products where this could also be undertaken by the private sector. Such activities can be provided efficiently by market forces. Therefore, we want to ensure that public monopolies do not prevent benefits being realised in the economy from competition. In this sector, these benefits include the efficient provision of a wider range of cheaper, innovative information products for both consumers and businesses. 3.2 The CUPI study estimated that the way many public sector information holders operate is costing the economy £500 million annually. 3.3 The study defined two relevant terms to cover the different roles performed by public sector information holders, unrefined and refined information. 'Unrefined information relates to the monopoly activities of the public sector information holder. If the information is not available from other sources, it is unrefined information.'[2] 'Refined information is unrefined information that has been combined with other information or has been manipulated in some manner. This manipulation needs to add value to the information beyond that which makes the underlying data useful for customers.'[3] 3.4 These terms will be used in this memorandum to refer to the monopoly and competitive or contestable activities in which public sector information holders are engaged. 3.5 The key findings of the study were that: • Public sector information holders are typically monopolists of unrefined information and neither are they constrained by competition nor do they face significant and detailed regulatory oversight. • Unrefined information is not as easily available for commercial use and re-use as it could be. This restricts the range of competitive products which could be developed by and for businesses and for end-consumers. • Licensing conditions for the use and re-use of public sector information are sometimes overly restrictive, so businesses are unable to use the information in some valuable new ways, restricting innovation and growth in the sector. • Prices charged are not always linked with the costs of collecting and disseminating the information. Where prices are too high, this can prevent the development of new products and prevent consumer take-up of information-based products. • Public sector information holders may be favouring their own business over competitors in the prices they charge and conditions they offer for unrefined information. This prevents effective competition between the public and private sector. • There is both legislation and guidance (much issued by HM Treasury) that is intended to ensure public sector information holders act fairly in pricing use of their information. We found that this legislation and guidance lacks clarity and is inadequately monitored, so public bodies are able to interpret the legislation and guidance in different ways, to the detriment of fair competition and consumers. Recommendations to government 3.6 As a result of the detriment referred to in paragraph 3.2 above, the CUPI market study resulted in a number of recommendations to Government to address the problems we found. These recommendations aimed to: • Make as much unrefined information available as possible for commercial use and re-use. • Ensure that businesses have access to the unrefined information they need at the earliest point that it is useful to them. • Provide consistent and equal access terms and conditions for unrefined information between businesses and public sector information holders themselves. • Ensure that public sector information holders account separately for their unrefined (monopoly) activities and their refined (competitive /commercial) activities. This will ensure that they can demonstrate that their prices of both unrefined and refined information reflect the costs of their respective provision in a fair and non-discriminatory manner. • Enable the Office of Public Sector Information (OPSI), to monitor information holders more comprehensively, using improved enforcement and complaints procedures. 3.7 These recommendations reflect best practice already being carried out by some information holders, such as the Met Office and the British Geological Survey. Since the study was published, many others have indicated a willingness to address our concerns. Significant problems with OS 3.8 In our report, we noted that the nature and seriousness of problems experienced by re-users of OS data means that the scale of our concern is considerably greater regarding OS than for other information holders. 3.9 [...]
3.10 The key barriers to effective competition for the commercial use and re-use of OS information are: • The implementation of OS' licence exception policy goes further than is appropriate given OS' public monopoly status. • Licence terms do not encourage the re-use of its information. • OS provides limited access to its unrefined information and concentrates on developing refined information products itself, giving businesses fewer opportunities to add-value and develop new refined information products. • OS does not separate its unrefined and refined information operations. This makes it difficult for OS to demonstrate whether it is providing equal access and the same prices to business customers and its own internal use of unrefined information. • OS' specific use contracts allow it the right to terminate its contract with a re-user in a wide range of situations, including when the re-user is in dispute with OS (not just for non-payment). This may prevent some businesses from using OS products or from raising disputes with OS, whether this is justified or not. The OFT's ongoing dialogue with OS 3.11 OS' response to our report initially showed resistance to the recommended changes. Part of this resistance arose from a misunderstanding of some of the details concerning our recommendations. We have sought to correct such misunderstandings and we are (as recommended in the CUPI report) in an ongoing dialogue with OS. To date, this has not resulted in any changes being agreed by OS but we hope that progress will be made. If not, as stated in the CUPI report: 'Should the concerns set out above [five bullet points in paragraph 3.10 above] not be resolved, we would need to consider whether further action by the OFT would be warranted to address these concerns.'[4] Proportionality and workability of relevant OFT recommendations 3.12 Distortions of competition can arise from the actions of both public and private sector bodies in markets. In our report we note the significant cost of public bodies' actions regarding the commercial use and re-use of public sector information. We also recognise that both public and private sector bodies may be resistant to the changes that will occur from our recommendations, particularly where such changes will incur some costs for public sector bodies and therefore, where they have incentives to maintain the status quo. 3.13 Organisation specific arguments against change always need to be balanced against the wider economic benefit for the public sector information industry as a whole and for the wider economy from addressing the problems we found. Our recommendations will have significant benefits for the economy at a very modest cost to any individual organisation involved. 3.14 The recommendations that are relevant to this memorandum include those concerning accounting separately for unrefined and refined information operations, pricing unrefined and refined information in line with costs, implementing transparent internal transfer prices and ensuring that prices, licences and terms and conditions of use of unrefined information are consistent between internal and external customers. 3.15 None of these recommendations are groundbreaking, and most represent no more than the best practice within other public sector information holders. As such, this indicates that these recommendations are applicable for use within organisations involved in earning a return on intellectual property, as well as being justifiable and beneficial for public sector bodies and for competition and innovation. 3.16 The OFT sought deliberately to develop proportionate responses to the problems that were identified in the CUPI market study. In particular, we were concerned to ensure that implementing more detailed accounting systems and separation was not disproportionately costly, particularly for smaller public sector information holders. Therefore, this recommendation allows for the introduction of these systems over time, to ensure that the adjustments costs are not incurred purely in one year. 3.17 Accounting separately for unrefined and refined information also has implications on the way in which public sector information holders recover their costs from the charges they make. Currently, OS recovers its total costs from among the entire range of products and services, spreading fixed costs between individual products and therefore varying individual product prices. 3.18 If OS were required to account separately for its unrefined and refined information operations, it would need to ensure that charges for its unrefined information covered no more than the costs of its production and supply, the required rate of return to HM Treasury. Equally, its refined information operations would, as a minimum, need to recover the costs of its production (including the internal transfer price for obtaining the unrefined source material) and supply and the required rate of return to HM Treasury. Concerns have been raised with the OFT regarding this issue when coupled with the introduction of fair competition for OS' refined information products, as together these changes may limit OS' ability to adjust its prices to recover the costs of its operations. 3.19 One of OS' main arguments regarding this proposal is that it would reduce the level of income they receive and consequently that returned to HM Treasury. We acknowledge that introducing competition for all of OS' refined information products may result in the entry and expansion of lower cost providers such that OS may lose some customers of its refined information products. However, OS will remain as a monopolist of its unrefined information, therefore there will be an increased demand for unrefined information and this should balance the losses from refined information. Where this is not balanced out, or where OS loses all customers of a particular refined information product, this would indicate that the presence of OS is no longer necessary in such a market. Overall, these processes will ensure that the costs of operating OS can still be recovered from its charges for information. 3.20 Furthermore and, as noted in the CUPI report, many of our recommendations are not new and there are other requirements on public bodies that will impose similar restrictions to those we are recommending. One example of this is the separation required under the revised Financial Transparency Directive which is being addressed currently by the DTI. 3.21 In conclusion, we are aware that implementing our recommendations will involve costs to public sector information holders; however we are also aware of the significant benefits for the economy as a whole of these changes. The benefits of the introduction of fair competition for refined information far outweigh the costs of the changes we propose within public sector information holders.
4 RESPONSE TO COMMITTEE'S QUESTIONS
Q 1 In 2002, the Committee's predecessor, the Transport, Local Government and the Regions Committee, concluded in its report on Ordnance Survey: "there is a clear need to define the boundaries of Ordnance Survey public service and national interest work." To what extent has the position changed in the intervening five years?
4.1 In the intervening five years, the need to define the boundaries of OS' public service and national interest work has increased significantly. In our response below, the key point is that none of the definitions and descriptions arrived at before or after 2002 succeed in separating the monopoly activities OS undertakes from its competitive or contestable activities. What should be separated? 4.2 The separation we are seeking is between information activities which can be provided by the private sector through efficient markets and those which cannot be provided in this way, or cannot be provided fully and efficiently in this way. 4.3 For OS, this will identify the activities and information for which OS would be justified in having a monopoly position and that for which it would be both possible and efficient for there to be competition in supply. The large scale surveying of the UK would be an example of a current monopoly activity (which leads to the unrefined information which OS holds), where competition in surveying on a GB wide basis is unlikely at present, due to the large costs incurred by OS in this area over a number of years. 4.4 If the public service and national interest definitions conformed to the appropriate monopoly element of OS' activities and products and if this separation was enforced within OS, with products and costs accounted for separately, this would address one of the OFT's key concerns regarding the operation of OS. Why separation is important 4.5 This separation is of critical importance to effective competition, as OS is in a privileged position as the only organisation that surveys throughout Great Britain in detail. As noted above, the cost of this surveying activity means that this monopoly position is unlikely to change in the immediate future. 4.6 OS is also engaged in the commercial production of refined information products from the unrefined information it collects. This involves interaction with both public and private sector customers, some of whom wish to develop new products using the unrefined information collected by OS. 4.7 Where such commercial activities are not separated from the monopoly activities of collection and production of unrefined information, significant competition problems may arise, both with and without the organisation having that specific intention. These problems can include: • Using high unrefined information prices to subsidise commercial activities developing refined information - this gives the public body an unfair advantage in developing refined information and can reduce the potential for efficient businesses to compete, thus restricting competition and innovation. • Providing easier access and better conditions of use for internal use of information when compared to external business customers. • Using internal development of commercial refined information products as a reason to deny access for commercial use and re-use of unrefined information. 4.8 The first two of these issues may represent an infringement of the competition law when practised by a dominant undertaking. 4.9 All three of these problems would lead to a restriction in competition in the sector and consequently would have a detrimental impact on consumers through higher prices of unrefined information and fewer refined information products being available. This would arise as businesses would lose the ability and incentives to innovate and produce valuable new products for consumers. As stated in the CUPI report, the cost of the restrictive practices seen throughout the public information sector as a whole were estimated to be £500 million annually. Definitions and descriptions of OS public service and national interest activities since 2002 4.10 Since 2002, there have been two notable attempts to define the boundaries more clearly. We note that in both cases, these have not identified the specific activities that OS as a public body should provide as a monopolist, compared to the competitive activities OS undertakes. 4.11 The Ordnance Survey Framework Document of July 2004 is an attempt to be more specific about the activities of OS. It states that OS' remit is to: '...maintain the master map of Great Britain sufficiently up to date and of suitable content and quality to meet the current and future data, graphic and information needs of all its customers; and provide national coverage of medium and small-scale data.'[5]
The Framework Document describes these activities as 'core activities'. In addition to these it states: 'in line with government policy for Trading Funds to generate a return on their assets, Ordnance Survey earns revenue from other repayment services where there is no conflict with delivery of core performance targets or where there is likely to be longer-term benefit to core activities. These additional services may be undertaken with private- or public-sector partners. This activity will be undertaken in accordance with HM Treasury guidance on selling into wider markets.' 4.12 This definition is widely drawn and is phrased broadly, such that there is likely to be notable uncertainty regarding the boundaries of the activities described above. The Framework Document also sets out strategic objectives including one to: 'Collect, portray and distribute the definitive record of the natural, built and planned environment of Great Britain that meets customer needs and the national interest in the most effective manner.'[6] 4.13 As with the quotations in paragraph 4.11, this is still widely drawn and makes no specific reference to mapping or mapping products. Also, the phrase, 'that meets customer needs' allows significant latitude regarding the boundaries of this objective. 4.14 Furthermore, this document was written when OS was still in receipt of government funding through NIMSA. This funding provided one way of separating OS' activities which has now been removed following the withdrawal of NIMSA funding. 4.15 OPSI, in its Report on its Investigation of a Complaint (SO 42/8/4): Intelligent Addressing and Ordnance Survey, stated that OS' public task '...covers all those operations... which are set out in Article 2 and Schedule 1 of the Ordnance Survey Trading Fund Order 1999 and as further detailed in the...Framework Document.'[7] 4.16 These require OS to manage all of its operations in such a way that its revenue would consist principally of receipts in respect of goods or services provided in the course of its operations. Pursuant to the Government Trading Funds Act 1973, paragraph 3 of the Treasury Minute dated 15 January 2004 imposes a further financial objective on
Ordnance Survey for the 3-year period form 1 April 2004 to 31 March 2007 to achieve a return on capital employed of at least 5.5 percent, averaged over the period as a whole. 4.17 The Intelligent Addressing complaint was reviewed by the Review Board of the Advisory Panel on Public Sector Information (APPSI), which concluded: 'The core responsibility and public task of OS is to compile and maintain accurate mapping data, and to finance that activity by commercial means, but that it does not necessarily follow that the supply of any particular commercial product thus becomes part of its public task. The Board is aware that OS takes the view that all of the products it supplies are part of its core task, that it is impractical to distinguish between its basic mapping functions which include the maintenance of its main topographical dataset (which it does not supply as such), and commercial products such as AP[8] and MMAL[9] which add value and are derived in part from it. In the Board's view such a distinction can, and should, be made. ...the view that OS is required to supply products which produce a commercial return is too undiscriminating, and does not of itself prove that the production or supply of any such products is part of the public task.'[10] 4.18 There is a need to identify the appropriate monopoly element in the geographic information market. This will ensure that the public service and national interest work of OS is drawn narrowly to promote effective competition in the rest of the geographic information market, to the benefit of consumers, government and competitive businesses. This issue was addressed in more detail in Chapter 7 of the CUPI report at Annex A. (a) In evidence to the Select Committee's recent inquiry into DCLG's Annual Report, the Department said the ending of NIMSA meant there was "no distinction between public service and commercial activity for Ordnance Survey"(Third report of 2006-07, HC 106; Ev. 105). But OS remains the largest public sector information holder in the UK, providing publicly gathered data under licence to organisations both public and private. How clear are the boundaries between its roles as the holder of base geographical information required by its partners and competitors to make their products commercially viable and as a commercial operator within the same marketplace as those partners and competitors? 4.19 There are no such boundaries present in OS between its roles as the holder of base geographical information and as a commercial operator. This finding arose from work conducted during the CUPI market study. This work included a detailed case study of OS, surveys of businesses using public sector information and evidence submitted to the study team. This response provides detail on the following issues: • OS does not account separately for its unrefined and refined information. • There are no internal transfer prices in OS for its own use of unrefined information to develop refined information products. • OS does not make much unrefined information available for commercial use and re-use. • The removal of NIMSA funding removes another distinction in OS' activities. • Practical problems and quantification of problems from OFT survey of business users of public sector information. Accounting separation 4.20 OS does not account separately for the costs and revenues of its unrefined and refined information businesses, even at the most basic level. This was a key finding of our case study of OS conducted in 2006 for the OFT by DotEcon Ltd. It is particularly important for OS to make this separation because it is engaged in producing refined information and because it gains a significant income from licensing information. 4.21 In terms of best practice from our case studies, we noted that the Met Office operates a well established wholesale and retail split. It also has an internal arms length relationship with its business units so that it treats its internal uses of information the same as its external customers. It has a transparent internal transfer price which represents the cost of providing the unrefined source material which is the same for internal and external users. The British Geological Survey also makes a separation between its wholesale and retail operations. 4.22 Furthermore, a requirement for comprehensive accounts is contained in guidance from HM Treasury, in particular the Fees and Charges Guide: 'Accounting and other information systems should provide the financial information required for setting charges, monitoring financial results against plans and producing accounts and other financial reports. A comprehensive system is particularly necessary where services fall into more than one category or a service moves from one category to another over time.'[11] 4.23 The implications of a lack of separate accounts can be significant and are highlighted in paragraphs 4.5 to 4.9 above. Our recommendation in the CUPI report for information holders to account separately for their unrefined and refined information operations sought to address this weakness in accounting while maintaining proportionality in terms of the costs of implementation, particularly important for smaller information holders. As the largest income earning information holder in the UK, the benefits of OS altering its accounts and pricing practices to separate unrefined and refined information (including greater competition, innovation and more extensive use of geographic information in the UK) would outweigh the costs of it so doing (including the costs of a more detailed accounting system within OS). Internal transfer prices 4.24 Without formal separation in the accounts between unrefined and refined information, it is not possible for OS to ensure that it is charging fair and equitable amounts to its external customers for the use of its unrefined information. Furthermore, it is also not possible for OS to determine the appropriate charges that should be paid by its internal refined information operation for its use of unrefined information in developing refined information products. A transparent internal transfer price is a critical step to ensuring that external users and re-users of information are paying an appropriate amount for the information they obtain and to demonstrate fair and equal treatment of internal and external customers that will allow competition to develop. Availability of unrefined information from OS 4.25 Chapter 6 of the CUPI report (see Annex A) provided evidence regarding the availability of public sector information generally. In particular, we received evidence from businesses that claimed: 'OS does not provide a basic mapping product that is a direct extract from one of its databases. This may imply that, in some cases, re-users are unable to gain access to the underlying data (at a stage where the field data has been assimilated but no more).[12] In addition they may have to pay a premium price for a product OS describes as value-added [refined] information.'[13] 4.26 In addition, we note that at the time of our report, OS' licence exception policy stated that OS may refuse applications: 'To market a product whose intended use is the same as, or comparable to, that of any product marketed by Ordnance Survey itself or any product which Ordnance Survey intends to market.[15] [16] 4.27 Since publication, this reference has been removed from the document noted above, although we have not seen any specific change of policy in determining to whom OS will grant a licence. 4.28 We are aware of case law established in this area which is used by OS as an explanation for its policy.[17]We recognise that this case law represents the most recent statement of the outer limit of a dominant undertaking's obligation to license its IPR under the Competition Act 1998 or Article 82 of the EC Treaty. 4.29 Nevertheless, we consider it preferable for OS to adopt a more flexible licensing policy in this area; indeed, such a more flexible approach would be far more appropriate in relation to the government policy to increase the commercial use and re-use of public sector information. A flexible approach would have the benefit of introducing competition the full range of refined information products OS produces, with lower prices and a wider range of innovative products and services likely to result. The ending of NIMSA funding 4.30 The cessation of funding for the National Interest Mapping Services Agreement meant that a possible boundary between OS' public service and commercial activities was removed.[18] 4.31 The withdrawal of NIMSA places OS in a rare position among public sector information holders in the UK in not receiving any direct government funding. This means that OS' charges for information will be higher, following the need to recover the full costs of the organisation. Consequently, these charges and its policies in relation to charges will have a greater potential to distort the market for geographic information. Where no government funding is provided, there is an even more compelling case for structural separation of OS, at very least at the accounting level to prevent competition problems from occurring. Practical problems 4.32 One of the notable cases of discrimination we encountered regarding OS during the course of our market study concerned tenders for one section of the Pan Government Agreement (PGA): 'One potential bidder was Intelligent Addressing, which claimed it was unable to meet CLG's requirement for a four year contract in respect of a PGA Lot for the supply of Address Gazetteer data. It explained that the data it wished to supply (the National Land & Property Gazetteer or NLPG) contained an element of data derived from Ordnance Survey and that Ordnance Survey would only agree to a one year licence term for this data. Ordnance Survey itself would have been able to meet the requirement for a four year supply contract as it owns the source information and would have no such contractual constraints.'[19] 4.33 As part of the CUPI study, we received numerous complaints in relation to OS licensing and pricing of its information. The majority of these complainants requested their details to be kept confidential, partly as they feared for their supply relationship with OS, as there were no alternative suppliers available. 4.34 Our business survey conducted for the study sought to quantify the instances of problems in the supply of public sector information. The full results of this survey can be seen at Annex B. OS was the supplier mentioned most frequently in relation to problems and, proportionately, it was the third most complained about public sector information holder. Thirty-one per cent of those that have business arrangements with OS reported problems in our survey. This is likely to underestimate the scale of overall problems as the survey was addressed to existing users. We heard from some businesses which wanted to license data from OS but had been unable to do so. We would not be in a position to identify all those in this position. Conclusion 4.35 The lack of appropriate boundaries between OS' roles as a holder of base geographical information and as a commercial operator is the key to many of the competition issues that we identified in our report in 2006. Consequently, there is a compelling case for the implementation of the structural separation of unrefined and refined information within OS as identified in the CUPI report. Q 2 In 2002, the Select Committee also identified "a clear need for some form of independent arbitration so that conflicts could be resolved" between OS and its partners and customers. To what extent has that position changed in the intervening five years?
4.36 Even with the new measures that have been put in place since 2002, there are still highly significant conflicts between OS, its customers and potential customers. Therefore, there is a continuing need for a form of arbitration that has the ability and powers to resolve such conflicts. 4.37 In the last five years, the Re-use of Public Sector Information Regulations 2005 have been implemented, OPSI and APPSI have been established and the Information Fair Trader Scheme instituted by OPSI. These changes have helped to clarify the procedures for considering complaints and the expectations on public sector information holders, although as noted in the CUPI report, there are notable shortcomings of these measures. 4.38 Regarding OPSI, we are aware that it has very limited powers and resources and as such is unable to act similarly to the established economic regulators in the UK. In the CUPI report, we noted that: 'We consider OPSI's resources to be extremely limited and insufficient to meet the objectives that are required for OPSI to be a fully effective regulator.'[20] 4.39 We recommended that OPSI should have an increased role in this area, through developing the Information Fair Trader Scheme to test public sector information holders rigorously for compliance with our recommendations relating to equal access to unrefined information, with detailed scrutiny of how charges are determined, and whether proportionate cost accounting systems and appropriate accounting separation are in place. 4.40 In addition, we noted that OPSI has very limited powers with which to address conflicts and disputes. We were aware that primary legislation in this area was unlikely and sought a proportionate recommendation to ensure that the power available to OPSI is made more explicit. We recommended that: 'OPSI amends its published procedures for investigating complaints under the Re-use Regulations to provide explicitly for the option of (a) revoking a delegation of authority in full or in part for Crown bodies, and (b) recommending to the parent department, in appropriate circumstances, that a PSIH [public sector information holder] is divested of its refined information operation.'[21] 4.41 We provide further details regarding our assessment of the effectiveness of the current complaints and redress systems for public sector information holders in Chapter 8 of the CUPI report at Annex A, as well as further information on the manner in which we sought to increase the capability and resources for OPSI. 4.42 Since publication of the CUPI report, APPSI has determined that the Re-use Regulations apply more narrowly than OPSI's interpretation.[22] APPSI also provided clarity over the interpretation of Regulation Five of the Re-use Regulations, noting the exclusion from the Re-use Regulations of documents where, '...a third party owns relevant intellectual property in it.'[23] APPSI provided a determination concerning the word, 'relevant' in the above. The determination may be interpreted to imply that many of OS' products could be excluded from the Re-use Regulations. 4.43 This means that there may be fewer sanctions available to address problems with OS and as such, this highlights the need for OS to make its unrefined information available to businesses and other public sector bodies in a non-discriminatory manner. 4.44 APPSI made its determination in response to a complaint from Intelligent Addressing, which APPSI believed should have been considered by the OFT under the Competition Act 1998. When the complaint was first received by OPSI, OPSI discussed it with the OFT under the Memorandum of Understanding between the two bodies. OFT and OPSI was agreed that OPSI should investigate the complaint as it involved licensing issues which fell into its area of expertise. Furthermore, the OFT was conducting the CUPI study which was seeking to address similar issues and took the view that this should be completed before we considered a complaint of this nature under the Competition Act. 4.45 We also make two additional points about the positions of OPSI and APPSI regarding their roles in independent arbitration. First, OPSI is unusual in being subject to ministerial control, which does not give it the independence of the economic sector regulators in the UK. There may be circumstances where such a position affects the credibility of OPSI's independence in decision making and thus may represent a conflict of interest. However, we do not have evidence that this is more than a theoretical concern. Second, APPSI has a dual role as both a review body for complaints and an advisory body for government. Again, there is a possibility of a conflict of interest which could call into question the credibility of the independence of APPSI to review complaints. As there has only been one complaint reviewed by APPSI to date, it is difficult to conclude at this time whether this is more than a theoretical concern. Q 3 What is your assessment of the UK Geographic Panel's operation since its introduction in 2005?
4.46 We do not consider the OFT to be best-placed to comment on this question, as the CUPI market study did not consider the geographic panel explicitly and we did not consider there to be a significant role for the panel in addressing the competition concerns we identified.
Q 4 The Select Committee's predecessor, in recommending in 2002 that an advisory panel on geographic information should be created, suggested that it should have at least three members, including the Association for Geographical Information, OS and a private sector representative. Is the current panel's membership sufficiently balanced with three private sector representatives among its 12 members?
4.47 The composition of the panel is unlikely to remedy the concerns we identified. We would like to see a division between the unrefined and refined operations of OS,in the interests of economic efficiency.
Q 5 In a memorandum to the Committee during its recent inquiry into DCLG's Annual Report 2006, the Government said that the ending of NIMSA means "there is no distinction for OS between public service and commercial activity". If that is the case, should the head of a commercially active organisation continue, ex officio, to be official adviser to Ministers on "all aspects of survey, mapping and geographic information"?
4.48 If the OFT's recommendations from the CUPI report were implemented in full, there would be appropriate separation between the unrefined and refined information businesses and activities within OS. Consequently, in such a situation, it would be unlikely that serious competitive harm could be caused by the role outlined in the question.
Q 6 Some OS competitors allege it is able to use its position as public sector information holder to compete unfairly, either by imposing over-stringent and costly licence conditions or by developing products of its own in direct competition with theirs but without the associated information licensing costs. There are further complaints that OS is an effective monopoly, preventing fair and transparent competition in the geographical information market. What is your view of these suggestions? 4.49 We address the particular points made in the above question in order. 4.50 OS imposes over-stringent and costly licence conditions: This was a key problem that we found during our market study. In Chapter 7 of our report we made four specific recommendations regarding, 'addressing overly restrictive terms', as well as recommendations to address, 'concerns about quality of service'. In Chapter 8, we made recommendations to address concerns with complaints procedures within information holders, as well as covering issues of compliance and redress mechanisms. 4.51 Regarding the cost of licences: We note that OS, like other Trading Funds, has a target to recover its full costs and make a positive return to HM Treasury. We made recommendations (Chapter 7 of the CUPI report at Annex A) covering the acceptable pricing of both unrefined information (where government funding may be provided for some public sector information holders) and refined information where provision in competitive markets is to be expected. These recommendations will still allow information holders such as OS to recover their costs in an efficient manner, while protecting businesses and ultimately consumers from unduly high prices and anti-competitive cross subsidisation.[24] 4.52 OS develops products of its own in direct competition with others: We received some allegations from businesses that information holders had used information about planned new products to develop their own products. Further information in relation to this point can be seen in paragraphs 6.37 to 6.42 above, and the recommendation following paragraph 7.26 of the CUPI report at Annex A. 4.53 In regard to competition more generally between OS and other refined information providers, as stated earlier in the context of OS' licence policy, OS seeks to avoid competing with those that it licenses to use its information. This issue is explained in paragraphs 4.25 to 4.29. 4.54 Whether OS is an effective monopoly preventing fair and transparent competition in the geographical information market: As stated above, we agree that OS is currently a monopolist and that its actions are preventing competition and innovation in the market. The lack of accounting separation and internal charging means that OS is not transparent and this is further restricting competition and innovation in the market. 4.55 Our recommendations would isolate and restrict OS' monopoly power. The provision of unrefined information could then be established on an equal basis between the refined business of OS and its potential competitors. This would allow effective competition between developers of refined information products to the benefit of consumers and efficient businesses. 4.56 In addition, maintaining OS as a monopolist for unrefined information has the benefit of allowing OS to continue to recover its costs fully from the charges it levies for its unrefined information products. This would alleviate concerns regarding shortfalls in income that have been mentioned in relation to our recommendations.
Q 7 How does OS' licensing and pricing structure affect local authorities?
4.57 In response to this question, we note that the licensing and pricing difficulties experienced by OS customers in our study related to customers in both the public and private sector including Local Authorities. 5 OTHER INFORMATION The benefit from addressing concerns with public sector information 5.1 As part of our report, we commissioned economic consultants, DotEcon Ltd, to produce estimates of the current value to society from public sector information and the potential growth in value if current problems in supply were addressed. DotEcon estimated the value of the sector to be £590 million annually, with the estimate of the current problems in supply costing the economy approximately £500 million annually. 5.2 OS attempted to ascertain the elements of these figures that relate exclusively to their organisations. Given the manner in which DotEcon undertook this work, using estimation on a sector wide basis, this attribution to individual organisations was not possible on an accurate basis. 5.3 Furthermore, detailed information regarding the relative extent of problems concerning individual public bodies and the good and bad examples of behaviour among individual public bodies (including specific restrictions on competition as well as best practice organisations) were not considered explicitly in these estimates. Therefore, attempts by information holders to divide the detriment between organisations based on rudimentary principles may be highly misleading regarding the extent of problems attributable in practice to a particular organisation. Inclusion of Annex D - International Case Studies 5.4 We have chosen to supply Annex D with this response, even though it is not referred to specifically above, as it indicates that problems regarding suppliers of public sector information, including mapping agencies, are not unique to the UK. Furthermore, this annex provides support for our view of the importance of establishing equal treatment, both in pricing and terms of licences between the public sector information holder and private businesses to ensure competition can thrive to the benefit of the whole economy.
6 LIST OF ANNEXES (not attached) Annex A: The Commercial Use of Public Information - report of the market study, December 2006. Annex B: CUPI Report: Survey of businesses that use public sector information Annex C: CUPI Report: UK Case Studies Annex D: CUPI Report: International Case Studies
[1] The commercial use of public information includes both internal commercial use of public sector information within a business and the re-use of public sector information which refers to the use of public sector information to develop new products based in part on the source information. In this memorandum, the terms [commercial] use and re-use will be used with this meaning. [2] Paragraph 7.21, The Commercial Use of Public Information, Office of Fair Trading, December 2006. [3] Paragraph 7.23, The Commercial Use of Public Information, Office of Fair Trading, December 2006
[4] Paragraph 7.46, The Commercial Use of Public Information, Office of Fair Trading, December 2006.
[5] Paragraph One, Annex B, Ordnance Survey Framework Document, July 2004.
[6] Paragraph 1.3, Ordnance Survey Framework Document, July 2004.
[7] See paragraph 24, Office of Public Sector Information Report on its investigation of a complaint (SO 42/8/4): Intelligent Addressing and Ordnance Survey, July 2006.
[8] OS Product: Address Point
[9] OS Product: Master Map Address Layer
[10] See paragraphs 2.23 and 2.25, Review Board of APPSI Report in relation to requests by Intelligent Addressing Limited and Ordnance Survey to review certain recommendations made in the Report of the Office of Public Sector Information of 13 July 2006 relating to a complaint by Intelligent Addressing Limited (SO 42/8/4). 30 April 2007.
[11] Paragraph 3.3.1 Fees and Charges Guide - Final Revised Text - March 2004 available at: http://www.aasdni.gov.uk/pubs/FD/fd1005att1.doc
[12] Footnote 96 from CUPI report, 'OS states that it provides information at the first point at which it is useful to businesses and that it has not had requests for its raw data. Businesses state that they would be able to use data in a less refined form than OS currently supplies and that they have asked for this but have been refused.'
[13] Footnote 97 from CUPI report, 'OS has stated that producing data in a more rudimentary form involves more cost where that data is generalised from higher specification unrefined data. Our view is that such data should be produced and priced to reflect the costs of its production.'
[14] Paragraph 6.22, The Commercial Use of Public Information, Office of Fair Trading, December 2006.
[15] See http://www.ordnancesurvey.co.uk/oswebsite/business/copyright/docs/D03800.pdf
[16] Paragraph 6.43, The Commercial Use of Public Information, Office of Fair Trading, December 2006.
[17] ECJ Case C-418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [2004] ECR I-5039 [18] The national interest was defined in NIMSA as having three components: '1. The public interest arising from the mapping of areas which would not otherwise be mapped if the judgement was made solely in terms of revenue generated by sales of that mapping alone. 2. The benefits of having national consistency of content, currency, style and manner of mapping which is dictated by needs other than those of the local market. 3. The inescapable requirement for the creation or maintenance of the underpinning infrastructure of the mapping (notably geodetic framework), which is widely used by other bodies and by the public and where charging for use is either inappropriate or impossible (such as the use of the National Grid).'
[19] Box 6.4, The Commercial Use of Public Information, Office of Fair Trading, December 2006. [20] Paragraph 8.58, The Commercial Use of Public Information, Office of Fair Trading, December 2006.
[21] Paragraph 8.81, The Commercial Use of Public Information, Office of Fair Trading, December 2006.
[22] Office of Public Sector Information Report on its investigation of a complaint (SO 42/8/4): Intelligent Addressing and Ordnance Survey, July 2006.
[23] Paragraph 1.11, Review Board of APPSI Report in relation to requests by Intelligent Addressing Limited and Ordnance Survey to review certain recommendations made in the Report of the Office of Public Sector Information of 13 July 2006 relating to a complaint by Intelligent Addressing Limited (SO 42/8/4). 30 April 2007.
[24] Cross subsidisation refers to the practice of using high prices for unrefined information to allow lower prices for refined information. These low refined information prices can prevent effective competition from private sector providers which are unable to match such prices as they only produce refined information.
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