Cellcos bet big on mobile gambling

Mobile gambling is touted as one of the big revenue drivers for mobile data services in the next five years. But it's not easy money, and the house is the big winner, so the real value for cellos may be in 3G-based VAS packages that maximize 3G's multimedia channels to deliver a (ahem) rich experience
Mobile gambling isn't a new thing to the wireless industry. It's been around for years in one form or another. Early versions of mobile gambling services involved subscribers receiving SMS text alerts for things like lottery results or the latest horse racing odds. Then came proper betting services such as the Hong Kong Jockey Club's SMS-based betting service, launched in 2000, that allowed punters to use their handsets to bet on horse races.
Inevitably, the emergence of sophisticated handsets and advanced mobile data services is already taking mobile gambling services and apps to new levels. Today, users can download Java-based gambling apps over higher-speed wireless networks.

As 3G networks become mainstream and handsets with advanced Java and video capabilities, many believe that such trends will help mobile gambling grow sharply over the next few years.

One source of optimism for mobile gambling enthusiasts is, of course, the rapid rise of remote gambling on the Internet, which has opened up sports betting and casino-style gaming to a mass-market audience. With millions of consumers now gambling online, market watchers and industry players believe that the large gambling community spawned by the Internet will be replicated to varying degrees in the mobile data world, as the immediacy and perceived anonymity of the Internet is increased when using a mobile phone.

And with gambling already generating large revenue streams on the Internet, that could serve as a serious revenue driver for mobile data. However, just how serious it will be depends on who you ask.

Estimates on the size of the mobile betting market vary widely. Figures from Informa Telecoms & Media indicate that the global mobile gambling revenues will grow from $1.2 billion in 2005 to $7.6 billion in 2010, split across the chief categories of sports and spread betting, mobile lotteries and scratch-cards, and casino and skill games. Juniper Research is even more bullish, predicting that global mobile betting will grow from $2 billion last year to $19.3 billion by 2009, with mobile lotteries becoming the most popular form of mobile gambling.

Either way, Asia is pegged as a key market for mobile gambling over the next few years. Informa says mobile gambling in Asia will grow from $426 million to $2.7 billion by 2010, making it the second largest market for mobile gambling after Europe. Juniper Research reckons that Asia will see strong growth of mobile lotteries, due to the strong culture of lottery in the region - and because most lottery apps don't require 3G capabilities to succeed.

"Mobile lotteries don't need 3G networks and are applicable in developing as well as developed markets, and Asia has both," says Bruce Gibson, senior consultant with Juniper Research.  He adds that there will be strong growth in subscriber numbers in Asia, much of it at the lower usage end of the market - many of whom will be low stake lottery players.

However, that doesn't mean that mobile gambling is easy money. Gambling, like porn, is essentially an adult content service, and thus it faces many of the same barriers and challenges that mobile porn services face today. In virtually every market in the world, gambling in any form is highly regulated even when it's legal. And for some cellcos, the real value may not be in gambling services themselves, but the value-added services built around them.

Big in Europe

The relationship between mobile gambling growth and regulatory climates is clearly illustrated in Europe. Mobile gambling is gaining traction there at rapid rates, largely due to more relaxed legislation.

In the UK, for instance, the government has drafted new gambling legislation which will relax the rules on remote gambling via the Internet, interactive television and mobile phones. However, anyone wishing to offer a remote gambling service in the UK must obtain a license to do so.

Elsewhere in Europe, state gambling organizations have been active in launching mobile lotteries, hoping to boost flagging lottery ticket sales through mobile-enabled ticket purchases and electronic "scratch cards". Many mobile operators have also been active in this field. Camelot, the UK national lottery operator, chose mm02 to provide SMS messaging capabilities that enables mobile users to play draw-based lottery games via SMS. Telefonica Moviles in Spain signed an agreement with Internet gambling company Lotojuegoes to offer lottery games. In Sweden, national gaming operator Sperospel launched an MMS lottery scratch card game, in which the player sends an SMS to a premium rate number requesting a scratch card.

Cellcos are also keen to launch casino games, with the UK being the leading market. 3UK, Orange and O2 have all launched such games. 3UK, for instance, is offering a fixed-odds casino service.

Meanwhile, mobile sports betting has proved popular in Europe. O2's Bet 2 Go mobile betting services allows mobile users to bet on football, golf, horse racing and greyhound racing either via SMS or WAP. In the UK last June, horse-racing satellite TV channel At The Races and William Hill, one of the largest telephone bookmakers in the UK, launched "At The Races 3G", which allows mobile users to place bets while watching live racing on their phones. The service is already being offered by 3UK, Vodafone and Orange.

New phenomenon

In Asia, the most successful mobile betting story so far is in Hong Kong, where over 100,000 mobile users are now using mobile phones to buy lottery tickets or bet on football matches and horse racing, either via SMS or WAP. [see "Hong Kong: gambling on the go"]

Beyond Hong Kong, however, mobile gambling is still a new phenomenon in the Asia-Pacific region, thanks to the predictable plethora of cultural and regulatory hurdles. Today mobile gambling services are banned in many countries like Singapore, Indonesia and Malaysia.

Even in markets where limited forms of gambling are allowed, existing laws haven't been amended to clearly state whether gambling via mobiles or the Net is legal or illegal. The Internet's lack of geographical boundaries complicates matters - for example, would a cellco in Malaysia be breaking the law if it allowed its users to place bets on a gambling site hosted and operated in Macau?

Titan Hon, IT director at Samvo Group, says current gambling laws in the region have failed to keep pace with technological progress, and thus present the greatest barrier inhibiting the introduction of mobile betting services.

Daniel Barton, business development manager at Two Way TV, agrees, saying many locally licensed gambling operators are reluctant to push the issue without guidance, since most legislatures in the region have yet to precisely define their positions on these sorts of market channels.

One way around this ambiguity is to offer games of chance where no actual money is at stake. Two Way TV, which provides interactive TV and mobile applications and technology in Australasia and Asia, has partnered with a number of gambling operators in Australia to offer play-for-fun games where mobile users don't bet real money and only pay a download fee, which is shared by Two Way TV and the cellco.

However, Barton says that eventually, growing offshore and casino-based competition will continue to exert pressure on governments in the region to open up the gambling market to mobile phones.

One possible scenario, he says, is that locally licensed operators would eventually be allowed to deliver the same products via mobile that they now deliver through traditional channels, but would be prohibited from offering mobile versions of products they are currently not allowed to offer.

"In the longer term it is likely that the practical difficulty of controlling access to offshore gambling services, whether internet or mobile, will drive more profound regulatory change," he adds. "But that is some way off."

Meanwhile, there are other significant barriers to be resolved, he says, such as payment mechanisms. Licensed operators are generally reluctant (or in some cases forbidden) to offer credit, so a true real-time electronic payment technology is required. Fortunately, a number of solutions to this problem are coming to market now, Barton adds.

The other chief issue for mobile gambling is, of course, social responsibility. To offer mobile betting mobile carriers need robust age verification and other safeguards to prevent underage consumers from gambling using their handsets. They will also need some kind of mechanism for monitoring and dealing with problem-gambling to satisfy critics.

Gibson of Juniper Research says this is why many mobile operators treat gambling very cautiously and are slow to bring mobile gambling applications onto their portals.

So far European mobile carriers have taken a proactive approach toward the launch of mobile betting services on their portals. In the UK, for instance, six mobile operators have put in place age verification systems to ensure that underage users cannot access gambling and other adult content on their mobiles.

Not just about money

Not surprisingly, behind all the legislative obstacles lies a strong demand for mobile gambling in the region. Barton of Two Way TV Australia says that where mobile gambling services are allowed by regulators, uptake is very high and the convenience factor is perceived by users as very valuable.

"Mobile will offer a different level of service to the Internet, initially growing the market for interactive betting," he says.

Interestingly, satisfying that demand doesn't have to involve actual gambling. In countries where mobile gambling is prohibited, there is plenty of demand for gambling-related materials and content that doesn't include real betting.

In Singapore, for example, mobile operator M1 is offering notifications of lottery results as well as soccer odds and match results. Chua Swee Kiat, communication manager at M1, says the company is offering such betting materials as a value-added service with a number of third-party content providers either on a revenue sharing basis or fixed fee basis. Customers can pay per request or pay a monthly subscription fee. They can also check the latest lottery results and soccer scores and odds by logging on to M1's mobile portal, MiWorld.

Chua says these services are popular among M1 users but declined to say how many users have signed up for the services.

Meanwhile, in China, local lottery companies like China Glory Lotteries have also partnered with cellcos China Mobile and China Unicom to provide users with SMS-based results of various types of lotteries.

There are other forms of mobile gambling content that aren't technically gambling in the strictest sense. Some operators offer games where players rely on skill rather than chance to win prizes. Some even offer casino-style games that users play for fun, not for money. (See sidebar at left)

The downside, however, is that while play-for-fun games do generate revenue, the revenue margin associated with them is low. That said, Informa Telecom & Media notes that play-for-fun games can act as an entry-point for mobile users, introducing them to the rules and mechanics of gambling games without the risk of losing money.

Real value for operators

But despite mobile gambling's huge potential for lucrative revenue streams, analysts say mobile operators won't be the biggest winners in a mobile betting boom. As in real-life casinos, the big money goes to the house. In the case of mobile, it's the specialist gambling operators that are likely to hit the jackpot, according to Gibson of Juniper Research. One reason is that most gambling services are not hosted by mobile carriers.

But this is not to say cellcos will walk away from the table as losers. For cellcos, the real business opportunity is not merely from hosting gambling services, but bundling other value-added services and content with them to drive mobile data usage.

With 3G, services like At The Races 3G in the UK and similar real-time betting services provided by Hong Kong cellcos, which combine gambling, interactivity, voice and video calling, could be an ideal way for cellcos to make money, as the customer uses all possible media services to assess the odds, place their bets and check the results.

"Mobile gambling is not just about betting, there are also other services and information that [the HKJC and cellcos] can provide," says Chris Lau, director of future services at SmarTone-Vodafone. "Whether [gambling] is going to be the next big thing for mobile, it depends on the market. But we are optimistic that it would be a big success."

Chan of the HKJC, concurs. "To make mobile phone an appealing betting tool to consumers, operators need to add more value to consumers by providing such information such as odds and results of horse racing. If a consumer need to use other channels, say at our shops or from the newspaper to get such information, then what's the point to use mobile betting?"

Case study

Hong Kong: gambling on the go

Hong Kong is not only well known for its high competitive mobile market. It also presents a case study of how the gambling industry has embraced mobile - and vice versa.

The Hong Kong Jockey Club (HKJC), a non-profit government body which administers and regulates horse racing and betting in the city, has been offering mobile betting services for over five years.

Abel Chan, manager of interactive services at HKJC, says one of the factors driving the HKJC to embrace wireless technology is cost.

Before 2000, when the HKJC began partnering with local cellcos to offering mobile betting services, the betting company also offered betting services through other electronic devices such as pagers and CIT (customer input terminal), an in-house propriety betting solution, which punters only used two times a week.

At the time, the HKJC's gambling services only covered the Mark Six lottery and horse racing, and its customer base was not as big as it is now, Chan says.

"But as the number of our customers grew, the maintenance cost of the CIT also ran up. So we decided to look for other new channels including Internet and mobile phones to deliver our services," he said.

The upside of mobile phones is that almost everyone in Hong Kong owns one, and its anytime, anywhere mobility is a convenience factor for consumers who hate queuing up in crowded HKJC shops to place their bets.

Initially mobile users could only use SMS to place bets. According to Chris Lau, director of future services at SmarTone-Vodafone, the early SMS-based mobile betting service STK was an embedded application in the SIM card. The downside was that whenever the HKJC changed the bet type, mobile users has to go to the HKJC to get a new SIM card. Also the limited storage on the SIM cannot support too many bet types.

"Mobile betting over the Internet removed all these constraints," he says. "It brings more convenience to mobile users, because whenever the HKJC reloaded their bet types, end-users do not have to renew their phones or SIM card. All can be done the Internet."

Now with 3G-based services from 3 Hong Kong and SmarTone-Vodafone, consumers can place bets in real time using WAP.

Chan of HKJC says about 20% of the company's total revenues are coming from interactive betting, which includes betting via mobile phones, PDAs, and other electronic devices such as two way pagers.


Gambling the mobile way

Traditional gambling always involve huge amounts of money and cash returns. But in the mobile world, gambling may just involve small amount of money, and in some cases, it does not need to involve real money at all. For many mobile users, mobile gambling is not primarily about gambling for huge cash returns. It's also a fun way to pass time while, for example, waiting for a bus.

Consequently, a potentially big growth area for mobile gambling is so-called "soft gambling" like skill-based games where players rely on skill rather than chance to win. Examples include quiz-based games like "Millionaire", where players answer trivia questions to play for prizes.

A related category of soft gambling is casino-style games, including card games like poker and blackjack, mobile slot machines and roulette that are played for fun only.

Bruce Gibson, senior consultant of Juniper Research, says mobile operators are quite comfortable with such types of games as they require no money handling for game payment and for payout.

"This will be a big growth area as the user profile is different to harder forms of gambling," he says. "It is much more evenly balanced between age groups and sexes."

Indeed some mobile operators are already making money off play-for-fun gambling services. SK Telecom says that play-for-fun gambling games generate around one-fifth of total mobile games revenues in South Korea.

Whatever the stakes, says research firm Gartner, one of the key elements for mobile gambling's success will be ease of use. Placing a bet has to be easy - clicking through numerous screens or entering a large amount of information will put users off. Personalization will also be important, Gartner says. For example, a feature that allows the application to "remember" that the user always places a $5 bet enables the user to skip that screen. Such personal touches will (hopefully) help foster customer loyalty.

For those offering casino types games, Gartner adds, screen size will be a major issue. As with any content presented on a smaller screen, low-quality presentation will detract from the user experience.

Wireless Asia