Memorandum by the Office of Fair Trading
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)[4]
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".[5]
"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".[6]
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 Furthermore, we note that previous attempts
by regulators and other bodies to influence the behaviour of OS
have met with resistance in particular, we highlighted in the
CUPI report that the Transport, Local Government and Regions Select
Committee's tenth report on Ordnance Survey 2002 recommended that
OS should separate its public service and national interest work
from its commercial activities.
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".[7]
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
Q1 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."[8]
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."[9]
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."[10]
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%, 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[11]
and MMAL[12]
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."[13]
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."[14]
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).[15]
In addition they may have to pay a premium price for a product
OS describes as value-added [refined] information.", [16][17]
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."[18][19]
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.[20]
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.[21]
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."[22]
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.
Q2 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."[23]
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."[24]
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.[25]
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."[26]
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.
Q3 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.
Q4 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.
Q5 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.
Q6 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.[27]
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.
Q7 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
4 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. Back
5
Paragraph 7.21, The Commercial Use of Public Information, Office
of Fair Trading, December 2006. Back
6
Paragraph 7.23, The Commercial Use of Public Information, Office
of Fair Trading, December 2006. Back
7
Paragraph 7.46, The Commercial Use of Public Information, Office
of Fair Trading, December 2006. Back
8
Paragraph One, Annex B, Ordnance Survey Framework Document,
July 2004. Back
9
Paragraph 1.3, Ordnance Survey Framework Document, July 2004. Back
10
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. Back
11
OS Product: Address Point. Back
12
OS Product: Master Map Address Layer. Back
13
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. Back
14
Paragraph 3.3.1 Fees and Charges Guide-Final Revised Text-March
2004 available at: http://www.aasdni.gov.uk/pubs/FD/fd1005att1.doc Back
15
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." Back
16
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." Back
17
Paragraph 6.22. The Commercial Use of Public Information, Office
of Fair Trading, December 2006. Back
18
See http://www.ordnancesurvey.co.uk/oswebsite/business/copyright/docs/D03800.pdf Back
19
Paragraph 6.43, The Commercial Use of Public Information, Office
of Fair Trading, December 2006. Back
20
ECJ Case C-418/01 IMS Health GmbH & Co OHG v NDC Health
GmbH & Co KG [2004] ECR I-5039 Back
21
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)." Back
22
Box 6.4, The Commercial Use of Public Information, Office of
Fair Trading, December 2006. Back
23
Paragraph 8.58, The Commercial Use of Public Information, Office
of Fair Trading, December 2006. Back
24
Paragraph 8.81, The Commercial Use of Public Information, Office
of Fair Trading, December 2006. Back
25
Office of Public Sector Information Report on its investigation
of a complaint (SO 42/8/4): Intelligent Addressing and Ordnance
Survey, July 2006. Back
26
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. Back
27
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. Back
| 
