AT&T Inc. (NYSE: T) plans to spend an additional $2 billion on deploying and upgrading its wireless network in 2010 and promises that it will have more 3G capacity in major U.S. cities such as New York and San Francisco.

AT&T says it is planning an $18 billion or $19 billion capital expenditure this year, an increase of up to 10 percent on 2009. “Wireless is our number one priority,” said John Stankey, president and CEO of AT&T operations, on this morning's earnings call.

Part of that spend will be on improving network capacity in New York and San Francisco so that the network in those areas doesn’t get slammed too hard by smartphone traffic. AT&T Mobility boss Ralph de la Vega said in December last year that the networks in those cities are “underperforming.” (See AT&T Mobile Boss: NYC & San Fran Are 'Underperforming'.)

“We expect significant improvements in both markets in coming months,” Stankey said.

The operations chief says that AT&T has now finished replacing network controllers in NYC and is now adding additional backhaul. He claims capacity should be increased by “one third” by the end of this quarter, particularly in high volume areas of Manhattan.

In San Francisco, meanwhile, the operator is adding high-capacity radios and more cell towers. De la Vega had previously said that AT&T had seen problems in the financial district because older “microcells” installed there could not handle the deluge of 3G data traffic

”We’re closing the gap,” Stankey contends.

Stankey also gave a basic outline of how the overall wireless capex spend will break down over the coming year. The carrier will up its spending on Ethernet backhaul, adding fiber to cellsites and increasing their number as it continues with 3G upgrades. AT&T says it now has 3G coverage across 75 percent of the U.S.

Stankey says that the operator has now rolled out software that increases the maximum download speed of its 3G high-speed packet access (HSPA) network to 7.2 Mbit/s across its 3G network. "The next step is to build out backhaul."

This increase in capacity will support the 3G network and will eventually support the company’s Long Term Evolution (LTE) network. Stankey said the infrastructure that AT&T is putting in place now can either support faster HSPA-based 3G or the proto-4G technology.

So far, the plan is to test LTE in two cities in 2010 and deploy it in 2011. “If it matures faster, then we can probably move to go a little bit faster, but I’m not optimistic that that’s going to happen,” said Stankey.

If LTE gets delayed or the device “ecosystem” isn’t ready then Stankey says that AT&T could still move to 20-Mbit/s HSPA+. “The nice thing is, we have the choice."

— Dan Jones, Site Editor, Unstrung