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Apple brings mobile billing to Japanese iPhone users

Apple's gradual rollout of carrier billing that started last year with Germany and Russia has reached Japan, where iPhone users can now buy mobile games and charge them to their phone bill, according to sources familiar with the matter.

Starting Tuesday, customers of KDDI, Japan's second-largest mobile phone company, have the option in the Apple App Store to pay by mobile, said the sources, who asked not to be named because the deal hasn't been announced. Japanese consumers who don't have credit or debit cards can participate in the mobile economy.

Carrier billing represents another battlefield between Apple and its chief rival Google, and one where the tech giants are taking very different approaches. Google Play, the app store on Android devices, has been signing up as many global carriers as possible and now has mobile billing availability in 45 markets, including deals with Japan's top three phone companies.

By contrast, Apple has been quite deliberate in its expansion, starting in Germany with Telefonica's O2 in late October, followed by VimpelCom's Beeline unit in Russia five weeks later. On Monday, the rollout hit Switzerland through a deal with Swisscom and Far EasTone in Taiwan.

"Something previously reserved for Android users is now available to millions of Apple customers via Swisscom," the Bern-based carrier said in a press release. "As a result of an extensive collaboration, they can as of now easily pay for digital content in the App Store and on iTunes, Apple Music, iBooks and Apple TV via their mobile phone bills."

Having seen positive results from its initial deals, Apple has several more countries in the near-term pipeline, sources said. With iPhone sales slowing, Apple is touting its growth opportunity in software and services, and the revenue potential from games, music subscriptions, books and cloud storage.

Apple carrier billing deals

Market Carrier Date Subscribers (mlns)
Germany Telefónica O2 Oct. 2015 9.4
Russia VimpelCom Beeline Dec. 2015 57.7
Switzerland Swisscom Aug. 2016 6.6
Taiwan Far Eastone Aug. 2016 7.4
Japan KDDI Aug. 2016 46.6
Source: Company reports

Japan is a critical market for Apple because it's among the countries where consumers are most comfortable with mobile payments. According to research firm Ovum, carrier billing accounts for 70 percent of purchases on Google Play in Japan and South Korea.

Only in those two countries has carrier billing reached far beyond digital goods and into physical products for "low-value items such as snacks, drinks and phone accessories," Ovum said.

But games are the key.

Japan is the world's biggest mobile gaming market, with consumers flocking to apps like Puzzles & Dragons from GungHo Online Entertainment, Fate/Grand Order from Aniplex and, of course, Pokemon Go. Games on phones produced about $6.2 billion in revenue last year, according to SuperDataResearch, $1 billion more than in China.

With 46.6 million subscribers, KDDI is bigger than SoftBank in Japan and smaller than NTT Docomo. KDDI didn't immediately respond to a request left before the opening of business in Tokyo. CNBC.com also put in requests for comment to SoftBank and NTT Docomo to see if they too are rolling out carrier billing, but we haven't heard back. Apple hasn't yet offered a comment.

Carrier billing has distinct advantages over plastic. Consumers are already paying their phone bills every month, so it's much easier to add items with the simple tap of a button than it is to type in information from a credit card or link to a PayPal account. For app makers, musicians and other content creators, that means more completed transactions.

Apple has a separate page on its website, describing how to set up mobile billing on an iPhone, iPad or iPod touch, or in iTunes from a computer.

"If your carrier supports it, you can pay for your iTunes Store, App Store, and iBooks Store purchases and your Apple Music membership through mobile phone billing," the web page says. It also notes that "mobile phone billing is currently available with select carriers in Germany, Russia, Switzerland and Taiwan."

The rates that carriers charge per transaction are higher than the average credit card fee, but they've come way down in recent years into the single digits. In the top markets, carrier billing adds enough volume to make up for the loss in margin.

Like other big platforms, Microsoft has been bolstering its roster of global carrier partners. Last week, the world's biggest software maker said that carrier billing is available across Windows 10 devices in the U.K. with O2 and in Italy with Wind. Meanwhile, Google made a big splash in May, signing its first carrier deal in India with Idea Cellular.

As Apple plays catch-up, expect to hear of several more rollouts in the coming weeks and months.