Cell Phone Bastards

by Colin Berkshire

Colin here. I’m getting pretty fed up with the US cell phone business. The deception, the smoke and mirrors, and the misinformation seems to feed an industry based upon cheating customers.

The fact is that you can build all of the cell phone towers in the United States for $30 Billion. That’s all of the towers from all of the companies combined. And, that’s a high-side estimate. Some will say the number is closer to $10 Billion.

Consider that the cell phone industry charges consumers that much every month and you will see that towers and coverage play a pretty small part of the cell phone business. No wonder service is so lousy.

OK, I admit my comments are pretty snarky. So here are some facts. At the end of 2013 there were 200,000 cell phone towers in America for all companies combined. There are several ways to get at this number but here is an easy one:http://www.statisticbrain.com/cell-phone-tower-statistics/

The average cost of building a tower is reportedly $150,000. But an insider contact that I have from one of the companies says that with newer technology the cost is really closer to $50,000.

Do the math and you get 200,000 * $150,000 = $30 Billion on the high side and $10 Billion on the lo side.

Granted, there is a cost for renting the site, and supplying the network connection. This seems to average $2,000 a month, including contracting out the on-site service. We’re talking about under $500 Million a month, which is under 2% of the industry billing.

So where does all of the money go? (Younger bloggers would probably ask it this way: “Where does all the F****g money go” but I’m an older type and will leave that to you.) Even Verizon’s CEO’s salary can’t make a dent in their income because it’s a mere $20 Million a year.

When you look at their financial statements it seems that a lot of money goes to paying down debt, which is a polite way of saying that past sins have been financed by the future. The cell phone industry isn’t like Apple Computer which pushes profits into bank accounts.

The only answer I can come up with as I pour through their financials is that the cell phone business is so poorly managed that there may as well not be any management. Large bureaucracy, corporate palace headquarters buildings, lots and lots and lots of executives, and a broken business model are what you are really paying for. Even still, the gross margins at Verizon are 33% and they manage to show modest profit because of debt service.

Because Verizon and AT&T are essentially an oligopoly (often matching each other prices and structures nearly perfectly) there is little competition, no need for efficiency, and no need to build lots of pesky towers.