Memorandum 18
Submission from LogicaCMG
EXECUTIVE SUMMARY
1. LogicaCMG supplies IT facilities and
services to the space industry and also to the communities that
use satellites. We believe that our involvement at both ends of
the space business is mutually strengthening, and that this business
model provides lessons for the economy as a whole. The relevance
of those results to the five issues identified in the call for
evidence is summarised in paragraph 18.
INTRODUCTION—THE
UPSTREAM/DOWNSTREAM
VIRTUOUS CIRCLE
2. LogicaCMG is a major international force
in IT services. It employs 30,000 people across 36 countries.
LogicaCMG's focus is on enabling its customers to build and maintain
leadership positions using LogicaCMG's deep industry knowledge
and its track record for successful delivery. The company provides
business consulting, systems integration and IT and business process
outsourcing across diverse markets including telecoms, financial
services, energy and utilities, industry, distribution and transport
and the public sector. Headquartered in Europe, LogicaCMG is listed
on both the London Stock Exchange and Euronext (Amsterdam) (LSE:LOG;
Euronext:LOG). The UK business unit dedicated to the space marketplace
is the largest UK space software group, and supports about 350
LogicaCMG staff.
3. LogicaCMG's mission statement is "to
help leading organisations worldwide achieve their business objectives
through the innovative delivery of information technology and
business process solutions". The leading organisations that
LogicaCMG helps are in both the downstream (near to the end users
and consumers) and upstream (infrastructure and manufacturing)
parts of the economy. We recognise that this terminology is not
precise in that "one person's upstream is another person's
downstream", but the virtuous circle argument applies wherever
the upstream and downstream occur in a value chain.
4. Our experience is that by being involved
in one end of a sector, we are better positioned to help organisations
at the other end to achieve their business objectives. Having
assisted in preparing the evidence to be submitted to the select
committee by UKspace and Intellect, we will focus in our evidence
on upstream/downstream synergy which we believe is an important
consideration in justifying public sector investment in the upstream
aspects of space, and has not been addressed in great detail in
the other evidence of which we are aware.
UPSTREAM-DOWNSTREAM
BUSINESS SYNERGY
5. The following examples illustrate this
synergy for our space business.
Mobile telecoms
6. We selected a commercially optimum mix
of GSM and Inmarsat services to link the remote telemetry units
of the 150,000 km British national gas pipeline network. Now we
are helping Inmarsat to define, develop and deploy its next generation
of mobile satellite telecom services. In five years time we will
help user organisations to integrate Inmarsat's new services into
their networks where commercially justified.
Fixed line telecoms
7. We provided a commercially optimum mix
of terrestrial and satellite (VSAT) links to connect the Indian
National Reserve Bank with 400 banks throughout the sub-continent.
Based on our knowledge of the changing marketplace and the technical
solutions addressing it, we are now helping Avanti to define,
develop and deploy a next generation satellite service (called
Hylas). In five years time we will help organisations to select
hybrid telecoms services that are commercially optimum in the
light of Hylas and other new services available then.
Defence telecoms
8. Ten years ago, based on our knowledge
of the commercial telecommunications marketplace and of defence
systems, we helped Astrium and UK MoD to define the communications
requirements of its next generation telecommunications satellite,
Skynet 5, and then helped define the commercial arrangement that
would apply (PFI) to that programme. Now we are developing and
deploying major elements of the service delivery infrastructure
of Skynet 5. In five years time we will be helping UK MoD to deploy
new services enabled by a balanced mix of military and commercial,
satellite and terrestrial links.
Positioning
9. LogicaCMG has been supplying fleet management,
routing and other positioning systems to commercial and public
sector organisations for more than 20 years, using a mix of terrestrial
and satellite technologies. Now we are helping to define, develop
and deploy both EGNOS and Galileo, Europe's two new satellite
positioning systems.[32]*
In five years' time we will be helping mobile telecom operators
and other organisations in the business of Location Based Services
to integrate EGNOS and Galileo into their service portfolios.
Space science
10. We define and develop the information
management systems that enable X-Ray astronomers to achieve their
research objectives using Europe's giant XMM-Newton space telescope.
We developed the software that guided the highly successful Huygens
probe to Saturn's moon Titan in January 2005. Our ability to understand
scientific objectives underpins our team of space scientists and
computer scientists who are defining and designing Europe's next
Mars probe, ExoMars. In five years time we will be helping scientists
to define and develop IT systems to maximise the scientific payback
of ExoMars.
Remote sensing
11. LogicaCMG is the world leader in helping
nations and organisations deal with the consequences of global
warming through carbon trading, energy trading, etc.[33]
We are also Europe's leading information security organisation
having undertaken for example over 60% of UK government system
security evaluations. Now we are defining the data security architecture
for Europe's new environmental satellite programme, Global Monitoring
for Environment & Security (GMES). In five to 10 years' time
we will be helping public and private sector organisations across
Europe to integrate information from GMES into their environmental
management systems.
12. Ten years ago we provided Eumetsat with
the computer facilities to turn raw satellite images into the
meteorological information required by Europe's Met Offices. Three
years ago we helped the UK Met Office to manage the information
technology aspects of the move to their new Exeter HQ. Now in
Japan we have developed a state of the art facility to correct
the images from that country's new generation of weather satellites,
MTSAT, and disseminate them to users. In five years' time we will
help Eumetsat and the Met Office to develop Europe's next generation
of weather forecasting data systems.
Quantifying the benefits
13. We can quantify the benefits of LogicaCMG's
upstream work using the methodology and terminology in
the recent study of "the impact of space derived services
and data" for EADS Astrium by Oxford Economic Forecasts (OEF).
LogicaCMG's direct UK upstream space revenues currently amount
to about £30 million per annum, which equates to about 350
employees at the LogicaCMG average annual revenue per capita of
£86k.[34]
OEF estimates that indirect and induced effects for the space
sector are 3.1 times the direct benefit[35],
thus implying that another ~1,100 jobs are supported by this LogicaCMG
upstream activity. Using OEF's figures, these direct, indirect
and induced effects contribute just over £100 million to
UK GDP.
14. Another factor that is quantifiable
is the GDP contribution of R&D. The upstream space activities
undertaken by LogicaCMG are largely R&D in nature. A conservative
estimate is that 75% of the ~£30 million annual revenue falls
into the R&D category, ie £22 million. Most of this R&D
is externally funded (albeit mostly under fixed price conditions
so that LogicaCMG bears the commercial risks). OEF estimates that
for the aerospace sector R&D investment generates a social
return of about 70%[36],
so this £22 million leads to a spillover increase
of £15 million in UK GDP in the long run. Thus, in total
LogicaCMG's upstream space business contributes about £115
million per annum to UK GDP.
15. OEF concludes[37]
that "on top of [its direct, multiplier impacts and R&D
spillover impacts] the application of space derived services and
data further contributes to the UK economy by facilitating the
provision of a wide range of services to business and consumers,
and by enabling the UK's infrastructure to be used more efficiently."
OEF however then goes on to state that "It is not possible
to quantify the value of all the additional benefits."
16. The benefits illustrated by LogicaCMG's
upstream-downstream synergy fall into this "catalytic"
category of benefits as OEF calls them, which OEF considers unquantifiable,
and we have therefore not attempted to do so. What we can say
is that the LogicaCMG downstream business that incorporates some
element of space services substantially exceeds the £30 million
upstream business.
CONCLUSIONS
17. It is good for organisations that use
satellites that LogicaCMG understands the trends in satellite
services. It is also good for organisations that design and operate
satellites that LogicaCMG understands the trends in the markets
that will use their satellites and services. And finally, it is
good for LogicaCMG that we are helping both suppliers and users
of satellites because that virtuous circle ensures a sustainable
business future for our company and our staff. We believe that
this model of synergy between upstream and downstream sectors
applies to the economy as a whole not just to one company in it—by
having companies active throughout the full space value chain
the economy is more resilient to changes in markets, technologies,
consumer trends and the many other factors that can affect economic
success.
ISSUES IDENTIFIED
IN THE
CALL FOR
EVIDENCE
18. Turning to the five specific issues
in the Call for Evidence, the following summary draws from the
examples above:
(i) Competitiveness. UK has historically
invested in space R&D with a view to getting a return on that
investment, unlike many other countries which have focused on
expensive prestige space programmes. This focused funding strategy
has been successful in underpinning the UK space industry's current
healthy position. Although much of LogicaCMG's space business
is for the commercial and defence markets (ie not R&D markets),
government investment in space R&D programmes has been essential
in underpinning the development of LogicaCMG's space business
for more than 30 years. Further well-targeted government investment
will continue to strengthen UK industry's global competitiveness.
(ii) Benefit of ESA. ESA and Eumetsat
programmes have consistently provided technology, experience and
the necessary focus that enhances LogicaCMG's global competitiveness.
ESA is highly skilled at delivering technically complex and advanced
systems, sometimes in the presence of heavy-handed political interference
(particularly in the so-called optional programmes).
(iii) Innovation and Knowledge Transfer.
ESA has acted as a very effective mechanism for turning UK Research
Council funding into commercially exploitable outputs.
(iv) Benefits of Government Space Activities.
Services delivered by, or involving, satellites are an increasingly
routine element of daily life—in both commerce and government.
Space provides an essential part of the knowledge infrastructure
that Britain's knowledge economy will rely on in the 21st century,
e.g. in the domains of broadcasting, telecommunications, navigation,
security and global warming. Coordinating Government investment
in space R&D across Departments has proved particularly difficult
in the early phases of new programmes, ie when the benefits to
the user Departments are not yet clearly identified.
(v) Space Research and Skills Base.
The outreach power of space programmes in illustrating the hi-tech
world is out of all proportion to their intrinsic cost. At LogicaCMG
space activities represent a relatively small part of the company's
overall business (1-2%) but a significant part (10-20%) of the
company's publicity output, reflecting the highly positive image
that national and international space programmes project to investors,
clients, staff, and potential recruits.
October 2006
32 * A summary of our extensive roles in Galileo can
be found at http://www.logicacmg.com/United_Kingdom/350233271. Back
33
See for example http://www.logicacmg.com/cmt/press-releases/index.asp?display=detail&id=1623. Back
34
LogicaCMG Annual review and summary financial statements 2005. Back
35
"The Case for Space-the Impact of Space Derived Services
and Data"; OEF, Oxford, Final Report, June 2006, p 8. Back
36
ibid, p 25. Back
37
ibid, p 5. Back
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