Examination of Witnesses (Questions 720
- 739)
THURSDAY 22 JANUARY 2004
MR ANDREW
TOTTENHAM, MR
RICHARD FLINT,
MR BILL
HAYGARTH, MR
JOHN O'REILLY,
MR PAUL
JAMES AND
MR CLIVE
HAWKSWOOD
Q720 Chairman: Either way, you are
going to pay for it?
Mr O'Reilly: Either way.
Q721 Lord Mancroft: But it is technology
testing, not product testing?
Mr O'Reilly: It is technology
testing but particularly it is output testing. It is ensuring
that the code delivers a fair game for the consumer.
Q722 Lord Donoughue of Ashton: Coming
back to the same subject, this is a complex industry to regulate
and we have had some impressively complex responses on this issue.
If I could just pin you down a little more, basically specifically
who and which technology should be regulated and who and which
should be exempt?
Mr Tottenham: Gaming operators
need to be regulated and should be regulated, and I think the
software provider, if they are a gaming software provider and
if they have a commercial interest in the outcome, because it
is not unusual for software to be licensed where you pay a percentage
of the revenue to a software provider.
Q723 Lord Donoughue of Ashton: So
Trading Sports should be regulated?
Mr Tottenham: Trading Sports is
a betting exchange and, there, there are some differences. Again,
there is an appropriate level of regulation for Trading Sports,
for example, but potentially they are a software provider of betting
exchange technology. If you take gaming software providers where
it is against a random number generator, and it is not about whether
Manchester United wins or Arsenal and so on so you cannot necessarily
check the outcome as a consumer, then I think there is a different
level that is required there, so it depends. If you are talking
about credit card processing software or people who host your
servers, I do not see the need for that, but I do think it should
be the operator and the software provider, appropriately for what
the levels of risk might be.
Mr Flint: Representing BSkyB,
we operate an interactive television platform so people can place
bets with operators through their television, and we do not believe
the platform, the means of communication between operator and
player, should be regulated. We believe it is the operator and
potentially the gaming software provider that should be regulated
rather than the platform.
Mr Haygarth: The ABB position
is slightly different from what you have heard just now from iGGBA.
We believe that it is the operator who should be regulated. The
operator is licensed and is responsible for all aspects of the
operation including the running of any random number generator
software that he might need to offer games to members of the public.
It is the operator who should have the responsibility of ensuring
that the software from whoever his provider is, and the day-to-day
operation of the technology, meets with the code and the regulations.
It is the operator who is licensed and who takes the commercial
risk, and the operator who should be responsible for the entire
operation.
Q724 Lord Mancroft: If we take what
you have just said and what Mr Tottenham said at the beginning
and what Mr Flint has said, Mr Tottenham said anybody with a financial
interest in the outcome and you said very much the same from a
different angle, and Mr Flint has basically said in a different
way that BSkyB does not have a financial interest, so presumably
BSkyB is doing it for free which is why it does not get regulated.
I know I am not very bright, but I am missing something here,
am I not? Can you talk me through that?
Mr Flint: As a platform provider,
as a provider that connects the operator and the player, we do
have a financial interest not in the specific game but clearly
we get paid for those services. However, we do not have any control
over the outcome of any game—we are just passing data between
the operator and the player, so it seems disproportionate to regulate
us on the basis where we are just passing information, just as
an ISP would over the internet or potentially a mobile phone provider
would using mobile phones. We do not believe it is right that
we should undergo the same level of regulation that an operator
would.
Mr James: I want to support that.
As a conduit for the access the emphasis is on the third party
provider rather than the person providing the access.
Q725 Chairman: And you are regulated
anyway by Ofcom?
Mr James: Yes, by Ofcom and other
various regulatory bodies.
Q726 Chairman: In your evidence,
Mr Flint, you say, "By relying on the probity of the operating
company and the personal licence, major regulatory hurdles can
be avoided that would make it impossible to operate in the UK".
What "major regulatory hurdles" are you worried about?
Mr Flint: This would be one, where
we would be regulated as a platform rather than anything else.
Sky is not only an operator but also the owner of the platform.
As an operator we should be licensed and regulated, but as the
operator of a platform we do not believe we should be.
Q727 Chairman: Beyond what Ofcom
is interested in, in your television service?
Mr Flint: Exactly.
Chairman: That is very clear, thank you.
Q728 Viscount Falkland: The iGGBA
has argued that different types of gambling like betting, gaming
and pool betting, which are provided on a remote platform, should
be covered by "a single remote gambling licence". Can
you tell the Committee what compelling reasons there are that
only one licence will do the job on remote, while on terrestrial
you would normally expect there to be several licences to cover
these particular betting opportunities?
Mr Tottenham: I think I would
need to clarify. Firstly, we are talking about completely new
regime here. Our concern was that the way the Bill is currently
drafted you need a casino licence and that would be extended to
cover remote gambling, as I believe is currently drafted. We are
concerned at the level to which the Commission will investigate
the operator, and supposedly the software provider, for a casino
licence in order to allow it to have a remote gambling or gaming
licence. Then there are the various activities—gaming and
betting—and the problem is there is a lack of definition,
so what is gaming, what is betting—
Q729 Chairman: Is it a lack of definition
or a lack of understanding of what the definition says?
Mr Tottenham: I think it is a
lack of understanding of what the definition says. There is more
clarity needed as to what is gaming, what is betting and where
things fall, and in the future you might have a gaming licence
where you require a betting licence and you might have a betting
licence where you have a gaming licence, and because you are providing
a remote service it would in our opinion make sense to have a
single licence that would cover you for all of those activities
as opposed to just one, and then you would not have to necessarily
worry about this being betting, and trying to get an opinion from
the Commission as to whether and what regulations might apply
to it.
Q730 Lord Mancroft: It would be very
complicated if that same regime existed terrestrially, would it
not?
Mr Tottenham: Under the current
licensing regime, if you have a casino licence you would be allowed
to do everything under the same roof—betting, casino and
bingo—so we are saying that if you have a remote gaming
licence you should be allowed to do fixed-odds betting, betting,
gaming, bingo, pool betting, etc.
Lord Brooke of Sutton Mandeville: Could
we ask the Bill team whether they are clear on this?
Chairman: I was wondering whether Mr
Hawkeswood might just want to think about that and give us an
answer in a moment, but perhaps you might like to put your next
question.
Q731 Lord Brooke of Sutton Mandeville:
In oral evidence to this Committee the Chairman of the Gaming
Board made the suggestion that a Gambling Commission might seek
industry secondments in order to deal with those areas in which
the Gaming Board is not currently involved. What would your reaction
be to that?
Mr Haygarth: ABB is delighted
the Chairman of the Gaming Board recognises that industry expertise
is needed if the Commission is to discharge its responsibilities
in an effective manner, and ABB will be pleased to discuss with
the Gambling Commission when it is formed how it might assist
in identifying any appropriate resources.
Q732 Lord Walpole: I am not clear
whether you are have answered this before or not but how will
the proposed regime for the regulation of remote gambling impact
on the remote betting industry currently located in the United
Kingdom?
Mr Haygarth: As we said in evidence
on Tuesday there is nothing in the Bill for the betting industry
apart from increased regulation and cost. At its extreme this
could lead to operators moving offshore or ceasing their remote
operations entirely. The small retail operator running a telephone
service from the back of his betting shop may well find that the
cost and the regulation of a new regime to be too onerous to continue.
Q733 Chairman: Mr Hawkswood, I think
the question Mr Tottenham asked was this: is it right that the
Bill says that they would need a casino licence to offer remote
casino gambling opportunities? Have I phrased that correctly,
Mr Tottenham?
Mr Tottenham: Yes.
Mr Hawkswood: It is not quite
right, Andrew; there is a slight misreading of the Bill there.
The intention is that a remote gambling operator would just apply
for a remote gambling licence and they would only need a casino
licence if they separately wanted to run a bricks and mortar operation.
Q734 Chairman: And in response to
Mr Haygarth's point, is the telephone bookmaker that operates
in Malton in my constituency at the back of a betting shop going
to have to have a remote operator's licence?
Mr Hawkswood: As the Bill currently
stands, yes, but it would take less regulation and the sort of
on-line gaming operation that Andrew is talking about.
Q735 Chairman: Presumably you would
agree that it is not the intent of the Bill to operate the provision
of the telephone service, which is the point Mr Flint has made
about the provision of the television service?
Mr Hawkswood: Absolutely not,
no.
Mr Haygarth: Chairman, could I
make a point here, please? On this question of licensing we think
it is not so much whether it should be one remote gaming licence
or four; the question is that the licence fee and the regulation
is set in each case appropriate to the activity being regulated
such that the remote betting operator is not burdened with a higher
licence fee and a more onerous regime than the remote casino gaming
operator, which would require more regulation.
Chairman: That clarifies it a little
more as well. I think we have all just experienced a unique scrutiny
experience in having a member of the Bill team present to clarify
our discussion! Can we now move on to social impact?
Q736 Dr Pugh: Can I clear my mind
about what has been said so far, because it is not perfectly clear
to me? The line being pursued by the panel, if I may put it like
that, is that examining the software that underlies internet gambling
is beyond practical investigation even if the regulator would
wish to do so because it needs frequent updating and so on, and
the appropriate way in which it would be regulated would be by
regulating the operator and looking at their outputs. Is an examination
of the operator's performance a kind of acid test that there is
nothing wrong or incorrect about the software?
Mr O'Reilly: Yes, is our view,
simply. The key is for the Gambling Commission to ensure that
the operator is delivering adequate tests on the data that is
delivered from the random number generator.
Q737 Dr Pugh: So if some programmes
were written to skew odds, only very marginally but enough to
mean a good margin of profit for the organisation that did that,
that would be detectable by examining the operator's performance
outputs?
Mr O'Reilly: It would, and is.
Q738 Dr Pugh: Invariably?
Mr O'Reilly: Yes.
Q739 Dr Pugh: Pursuing the idea that
you cannot examine the software, I understand—and I may
not be correct in this—that you can go into an arcade and
look at a motherboard and the extraordinary details of how that
machine operates and validate whether everything is okay, but
why can you do that with these extraordinarily complex arcade
machines and not with the internet service?
Mr Tottenham: Going back, we do
believe in some software testing. We do believe that certain core
modules of the code need to be looked at and that testing is appropriate,
and outcome testing, but the probity of the supplier does need
to be without question because they can influence the outcome.
Outcome testing can only look at the historic, and then it is
within statistical norms. Trying not to get too technical, if
you have a million outcomes or ten million outcomes it would be
unlikely that it would be statistically exactly the percentage
payout that you would expect from that game. It would vary within
a certain degree and, if it varies under by one per cent over
a million or two million outcomes or ten million outcomes, that
might not necessarily be outside what would be expected for that
particular game.
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