Carrier aggregation for the cellular monopoly

by Colin Berkshire

Colin here.

There is an increasing trend that is likely to shape US cellular service behind the scenes. It is called “Carrier Aggregation”. It is the one final solution to pesky competition.

Carrier Aggregation is a very simple idea: Why don’t the cellular carriers all get together and share towers? Think of the cost savings! Never mind the [cough] oligopoly [cough] problems.

Carrier Aggregation is well underway. It will create a clique of carriers that interoperate and that exclude unwelcome competition.

You may know that T-Mobile sold off all of its towers to a third party, Crown Castle. T-Mobile leases capacity on those towers, but it no longer owns and controls them. For all practical purposes, T-Mobile is out of the tower business.

This has placed extreme financial pressure on Verizon, who is saddled with an unserviceable amount of debt from its repurchase of stock from Vodaphone. To solve some of this staggering debt, Verizon is now also looking to sell off its towers, and such a deal is likely.

All of this sets the stage for the cell phone companies simply being marketers who capitalize on having won federal spectrum licenses rather than by, well, building and owning cellular towers.

With Carrier aggregation carriers who are in the clique pool their towers and spectrum and they work together behind the scenes. They reduce the duplication of towers while limiting which new upstart carriers can join the clique. (Can you spell OLIGOPOLY?)

This is a major trend, and cellular equipment manufacturers are increasingly focusing on carrier aggregation. Towers are being converted as I write this.

What this means is not that we will have more towers, or more coverage. What it means is that we will have even less competition. New companies won’t be able to join the clique of aggregated carriers and simply cannot build up a sufficient network to compete.

In a previous article I mentioned that the actual investment by US carriers in tower infrastructure was shockingly small. The entire infrastructure of the cellular industry could be doubled by spending something like one month’s income. So clearly, good coverage isn’t a priority of the carriers.

So if carrier maps increasingly look identical, it is likely due to Carrier Aggregation. This is a substantial trend, and you must remember that it has nothing to do with monopolization. It is a bit ironic that by the time this ends, carriers won’t actually own the phones or the towers. They just own the billing computers.