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Apple iPhone 3GS

In recent years, the Dallas, Texas-based carrier has taken a beating from customers who have complained about poor network reliability and data congestion in urban cities such as New York and San Francisco where quarters are tight.

But now, with a Verizon-compatible iPhone slated for mass production as early as September, AT&T is rushing to make improvements to its much-criticized network for the looming battle between the two juggernauts.

In December, AT&T began a 100-day plan to drastically improve its network in densely-populated areas -- by readjusting antennas to improve signal strength in office buildings, opening new spectrum frequencies to better manage data traffic and wiring towers with speedier wireless technology.

The company said it plans to spend an additional $2 billion on roll-outs -- putting in new radio boxes, building more cell towers, and adding new sites in high-density areas like transportation hubs -- resulting in twice as much capacity as it had last year.

"We'll continue improvements in those markets in the coming months," said John Donovan, AT&T's chief technology officer. "We're managing volumes that no one else has experienced."

AT&T has gained millions of new subscribers from its exclusive deal with Apple for the iPhone in the last three years, and has had to handle significant growing pains in the process, which the company argues has positioned it to offer better service than any competitor picking up Apple's device for the first time.

Last year, when its network came under heavy strain from iPhone usage, the carrier flew two network experts out to Apple to give designers a crash course in wireless networking. Apple then reconfigured the iPhone to better communicate with AT&T's towers and put less load on the network during simple tasks such as finding the closest tower or checking for text messages.

Afterwards, the company lifted its network ban on Internet calling services, such as Google Voice.

Aside from Verizon's device, Apple is also developing a new version of the iPhone for AT&T to launch this summer. Both versions, rumored to be called the iPhone 4, will feature an A4-class chip, a 960 by 640 pixel touch screen display, a front-facing camera and run iPhone OS 4.0 software with third-party multitasking.

Apple's new iPad, a tablet computer that focuses on Web surfing and Internet, is also set to hit AT&T stores later this week.