The No. 2 telco responds defiantly to AT&T's claims that its ads are false and misleading

"AT&T did not file this lawsuit because Verizon’s 'There’s A Map For That' advertisements are untrue; AT&T sued because Verizon’s ads are true and the truth hurts."

So begins Verizon's (VZ) legal reply to a pair of lawsuits filed earlier this month by AT&T (T) demanding that Verizon pull five disputed ads from the air. The issue: a pair of 3G coverage maps that AT&T claims are "false" and "misleading" and are causing it "irreparable harm" as the two companies enter the holiday selling season.

The 53-page filing lays the factual basis for the ads and concludes its introduction with a  paragraph that gets to the heart of AT&T's problem: its failure to prepare for the success of Apple's (AAPL) iPhone, for which it is the only authorized U.S. carrier.

"In the final analysis," the introduction concludes, "AT&T seeks emergency relief because Verizon’s side- by-side, apples-to-apples comparison of its own 3G coverage with AT&T’s confirms what the marketplace has been saying for months: AT&T failed to invest adequately in the necessary infrastructure to expand its 3G coverage to support its growth in smartphone business, and the usefulness of its service to smartphone users has suffered accordingly. AT&T may not like the message that the ads send, but this Court should reject its efforts to silence the messenger."

The document is available as a PDF here.

See also:

• The iPhone wars: AT&T vs. Verizon
• Verizon vs. AT&T: There's a map for that
• Rumors: A Verizon iPhone in 2010
• AT&T Mobility is nipping at Verizon's heels

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Ma Bell strikes back with a letter, another lawsuit and its own coverage maps

The map that AT&T sent to the press. Source: AT&T

Claiming "irreparable harm," AT&T (T) has filed its second lawsuit in two weeks asking a U.S. District judge to force Verizon (VZ) to pull its new TV ads — cartoons that depict the iPhone as the latest arrival to the "island of misfit toys." The issue, once again: coverage maps that AT&T claims are "false" and "misleading."

On Thursday, AT&T followed up with a "set the record straight" letter reminding customers and the press that it, not Verizon, carries the "most popular smartphones" — i.e. Apple's (AAPL) iPhone — and that its customers, not Verizon's, have access to more than 100,000 applications.

The letter includes a link to the version of AT&T's coverage map — shown above — that the company thinks Verizon should be showing in its ads.

We're not so sure. Let's look a little closer at this map — and some others — below the fold.

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What happens when telcos practically give it away ($13 for 100 megs!)?

NiQ Lai, chief financial officer of Hong Kong's City Telecom (CTEL), stopped by FORTUNE's San Francisco offices this week while on an investor tour. I had one question for him: Short of moving to Hong Kong, how can I get some of what he's selling?

I pay $25 to AT&T (T) every month for DSL that tops out at 1.5 megabits per second downstream, and 384Kbps for uploads. It's not always as fast as advertised. Sometimes it doesn't work at all. Cable offers faster speeds in my neighborhood, but the service also costs more, so I just try to remember the days of dial-up modems and convince myself that DSL is good enough.

But if we had a US version of City Telecom, I'd switch in a heartbeat – which is precisely what the residents of Hong Kong have been doing lately.

City Telecom's 400,000 customers pay $13 a month for 100 megabit synchronous broadband. And they get a money-back guarantee: If they don't clock 80% of the promised speed, the company pays them twice their monthly fee.

"We have a big hairy audacious goal," says Lai, referring to the term popularized by "Good to Great" author Jim Collins. "We want to be the largest IP service provider in Hong Kong by 2016. And three years into our strategy, we're well on our way to doing it."

If you live within coverage area of Verizon's FiOS service (VZ), you pay as much as $150 a month for up to 50 megs downstream and 20 upstream.

How can City Telecom possibly offer service that's more than twice as fast at less than 10% of the price?

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Two sources say Apple is building a hybrid "worldmode" phone that Verizon could use

Judging from reader comments in this space, there are a lot of cellphone owners in America locked into Verizon (VZ) contracts who would buy an iPhone in a minute if they didn't have to switch carriers to get it.

Verizon has made it pretty clear that it would cut a deal with Apple (AAPL), were it not for a couple of impediments: 1) the contract that makes AT&T (T) the iPhone's exclusive U.S. carrier, and 2) the fact that Verizon's network (based on CDMA2000 technology) is incompatible with Apple's smartphone (which uses W-CDMA (UMTS)).

The first roadblock — AT&T's contract — is set to expire next year, according to a widely cited 2008 USA Today article that included an interview with chairman Randall Stephenson. (Stephenson declined to comment on the details of the contract.)

The second barrier could also disappear were Apple to build a new iPhone that is compatible with both AT&T and Verizon's networks. More

Going after AT&T's network and Apple's iPhone could prove an expensive proposition

Source: Motorola

Broadpoint AmTech analyst Mark McKechnie's estimate that Motorola (MOT) sold 100,000 Droid smartphones last weekend has been getting a lot of attention, although nobody's quite sure what to make of it. McKechnie called the number "encouraging." Nielsen's Roger Entner found it "a little troubling." IDC's Ramon Llama said it was "nothing to shrug off."

Part of the problem is that everybody is comparing Motorola to Apple (AAPL), which sold 270,000 iPhones in its first two days of sales in 2007 and 1 million iPhone 3GSs in three days last June. The consensus on the Street is that Motorola will do well to sell 1 million Droids by the end of the year.

The other problem — and the reason Nielsen's Entner is so troubled — is that the ground had been softened for the Droid by a carpet-bombing ad campaign, the biggest in Verizon's (VZ) history. According to Ad Age's Rita Chang, the carrier has budgeted $100 million to support the Droid, most of it to be spent before the end of the year.

You can do the math.

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Motorola and Verizon invited comparisons, and that's what they got

Photos: Motorola, Apple

The Droid lands in stores Friday, and on Thursday the heavyweight reviewers — which is to say the Wall Street Journal's Walt Mossberg and the New York Times' David Pogue — weighed in.

Given that Motorola (MOT) and Verizon (VZ) pitched the Droid in its first TV ad as everything Apple's (AAPL) and AT&T's (T) iPhone was not, it was perhaps inevitable that every reviewer so far, including these two, treated its arrival as a grudge match.

Mossberg's review is positive but tepid — especially the video version. He plods through the comparisons item by item like a slightly boring homework assignment. His top-line summary:

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The largest smartphone maker you've never heard of wants to capture the hearts – and dollars – of the U.S. consumer.

Motorola's (MOT) Droid phone is getting a ton of buzz, and that’s by design. Verizon Wireless (VZ) chief Marketing Officer John Stratton has said the marketing campaign behind its iPhone competitor will be the largest in its history.

But the Google (GOOG)-powered device isn't the only smartphone the company is likely to begin selling at the start of November. Though no one has officially confirmed, the carrier is expected to announce a second device that will also run on Google's  Android operating system at half the price: the HTC Droid Eris.

Haven’t heard of HTC? You aren't alone. More

Those Get-a-Mac spots aren't cheap, but they deliver a lot of bang for the buck

Photo: Apple Inc..

Apple (AAPL) shells out a ton of money for advertising. In fiscal 2009 it spent $501 million, according to the 10-K form filed Tuesday. That's up from $486 million in 2008 and $467 million in 2007.

But half a billion doesn't seem like so much when it's compared with the $1.4 billion Microsoft (MSFT) spent in fiscal 2009, or the $811 million Dell (DELL) spent on ads I can't remember ever seeing.

In fact, as a percentage of revenue, Apple has actually been decreasing its ad spending every year for the past eight, from nearly 5% in 2001 to 1.37%  today (1.17% if you use non-GAAP revenue). That's less than half the 3.6% of revenue Research in Motion (RIMM) spends advertising BlackBerries. (See chart below.)

Most recent fiscal year. Source: Company reports

Yet even if you despise Apple and never use their products, you tend to remember their ads. How does Apple get so much bang from its marketing buck?

I can think of five reasons: More

Verizon Wireless' subscriber rolls are growing, but not as fast as AT&T's

Source: Company reports

In the quarterly report that Verizon (VZ) issued Monday, the number that's getting the most attention is 1.2 million.

That's how many new wireless subscribers Verizon added over the past three months. And it's being compared unfavorably with the 2 million that AT&T Mobility (T) gained in the same period.

Verizon, with a new total of 88.8 million subscribers, still has the largest wireless network — something its ads never tire of reminding us. But AT&T, with 81.6 million, is catching up, and there's no mystery why. AT&T activated a record 3.2 million iPhones in the third quarter, nearly 40% of which belonged to customers new to AT&T.

Meanwhile, Verizon's total churn rate is going up (from 1.33% last year to 1.49% this year) while AT&T's is going down (from 1.69% to 1.43%).

But AT&T's momentum may be short lived. More

The trouble with being number one in any industry is that you have nowhere to move but down. Few companies know this better than Nokia (NOK), the Finnish telecommunications giant that has dominated cell phones for so long that in some parts of the globe the brand itself has become synonymous with the device. More