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It's called rtk correction: http://en.wikipedia.org/wiki/Real_Time_Kinematic

There's an opensource rtklib which supports a handful of inexpensive receivers: http://gpspp.sakura.ne.jp/rtklib/rtklib.htm

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Why don't cell towers do this?

Cell towers kind of do by providing an accurate time and other features in AGPS.

Not really. AGPS improves the time it takes to lock on to the GPS signal, but it doesn't improve accuracy.

You need a receiver in the phone that can phase track, which costs 50x as much as the simple GPS chip they fit.

You also need either a lot of storage locally or a fast data link between the base station and the rover - phones actually have both of these but they cost money

You need a receiver in the phone that can phase track, which costs 50x as much as the simple GPS chip they fit.

So, $0.50 instead of $0.01? :)

I think Phase tracking GPS chipsets are still pricey - outside surveying applicatiosn there isn't much demand.

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