In an interview with Bloomberg, Marshall once again said he believes Apple (AAPL) will bring the iPhone to Verizon (VZ) in the second half of 2010 and forfeit AT&T’s (T) sweetheart carrier subsidy as a result. This is, of course, essentially what he said a month ago, although now we appear to have a firmer date.

“While [Apple] started off with exclusive arrangements in 2007 with the original iPhone launch, the company has since migrated towards multiple carriers per region,” Marshall wrote in an October note to investors. “In our view, diverse carrier support is a key element to driving global penetration of the iPhone. Therefore, we believe the chances are high the iPhone will find its way onto the [Verizon] network in 2H10.”

According to NPD Group’s latest Mobile Phone Track study, price cuts on devices like Apple’s (AAPL) iPhone and RIM’s (RIMM) Blackberry Curve inspired a three percent decline in the average price for all cellphones in the third quarter of 2009. The overall average purchase price for mobile phones in the U.S. for the period: $85. A year ago it was $88.

An interesting trend given the fast-advancing feature sets and presumably high development costs of the new state-of-the-art smartphones we’re carrying around these days. For while these lower prices mean more sales for smartphone manufacturers and more subscribers for their carrier partners in the short term, they may well be undermining the smartphone’s price potential in the long term. It’s hard not to see the $299.99 Palm (PALM) Pixi for $24.99 on Amazon (AMZN) or the $499.99 Droid Eris for $49.99 on Overstock (OSTK) as having some deflationary impact once those retailers are done with them.

“That impact will continue,” NPD analyst Ross Rubin told me. “The iPhone 3G at $99 has created a benchmark that competitors are responding to with handsets such as the Droid Eris and Palm. Even where a handset is competing closer to the $200 mark, carriers and retailers are using buy-one-get-one promotions (that help lock in family plans). And retailers are discounting even value-priced smartphones further to drive store traffic and accessory sales.”

Rubin’s conclusion: “We will soon reach the point where the handset is a minor expense consideration and the required monthly data fees become the limiting factor in smartphone adoption.”

But the acquisition is not without risks. It poses a massive integration challenge for Ciena (CIEN), the likes of which the company has never dealt with before. As Jefferies & Co. analysts wrote in a research note this morning, “We can’t think of anyone in Ciena’s management team that has ever been involved in–much less integrated–an M&A deal like this.”

Kara began Monday with some of the hard facts from the pending AOL-TimeWarner (TWX) split. Stock issued for the post-spinoff AOL places the company’s total implied value at around $3 billion. Also on the list of stuff from 1994 being jettisoned from tech companies is the original instant messenger, ICQ. Kara reported that AOL seeks to shed the brand in an effort to keep the larger ship afloat. Over at Yahoo (YHOO), Kara opened the lid on CEO Carol Bartz’s shifting of top execs. In Silicon Valley’s house of cards, everyone watches out for a shuffle.

Over at Digital Daily, John brought some hard numbers to the stresses being felt by AT&T’s (T) 3G network thanks to a certain fruit-flavored smartphone. It seems that the iPhone is largely responsible for the 2,000 percent increase in data traffic in the San Francisco Bay Area compared with a year ago. (Weekend Update doesn’t claim sole responsibility.) Keeping up with layoff news these days is almost a full-time job. It’s a good thing Paczkowski is on the case. This week, Sony-Ericsson let roughly 2,000 employees go. The firm plans to shutter whole offices in both the United States and abroad. John finished strong with a whole slew of posts about the forthcoming Google (GOOG) Chrome OS, which was released in a developer’s beta this week. Next year, the good kids may be getting their stockings filled with Chrome rather than Apples.

You can never tell what MediaMemo will have up its sleeve in a given week, and this one was no exception. Peter came in early with reports that Wired magazine is another publication betting on a certain tablet. Wired may pave the way for other Condé Nast publication e-editions. From the department of “Hey, it looks like it worked for them,” a couple of music giants will release a Hulu-like service for music videos. No word yet on whether the Internet killed the video star. Peter closed it out this week with the fizzle that will be Oprah’s broadcast career. The talk-show-host-turned-deity will end her broadcast career in 2011, but may not be sorely missed by CBS, according to MediaMemo. Everyone is pretty torn up about Gail leaving though.

Personal Technology went a little off the reservation this week and covered an intriguing specialty gadget with a very specific target audience. The reading aid for the visually impaired is unusual for many reasons, not the least of which is that its branded Intel (INTC) both on the inside and outside. The reader uses a downward-facing camera to read text and translate it directly to speech. Walt was pleased with the device on the whole, though he encountered some bugs and a somewhat steep learning curve that may be a function of the novel nature of the product. Over at Mossberg’s Mailbox, the lead question this week was about data loss. Once the geek shudders stopped, Walt let the reader know that there are many alternatives to Apple’s (AAPL) Time Capsule drives, and the integrated Time Machine option is one useful alternative. At Mossberg Solution, Katie won a fight with a Pixi and brought us the blow-by-blow account. The cheap-and-cheerful version of the Palm (PALM) Pre features a stripped-down price. That savings came at too high a performance cost, said Katie. She praised Palms webOS, but came down on the side of spending a little more to get the Pre.

Stay tuned and check back often. Weekend Update will be back next week as long as we can make it out for the Black Friday sales with all our fingers and toes.

Staggering, considering the Pixi arrived at market just four days ago, but perhaps necessary given early and widespread complaints about the device’s slow operating speed, some unfavorable reviews and the fact that the Pre–the Pixi’s more robust elder sibling–is now selling for $99.99 and $79.99 at Wal-Mart (WMT) and Amazon (AMZN), respectively.

UPDATE:

Palm’s aren’t the only smartphones being heavily discounted as we head into the holidays. Motorola’s and HTC’s are as well. Amazon is offering the Moto’s Droid for $149.99 and Overstock is peddling the HTC Eris for $49.99.

“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.”

– Excerpt from Verizon’s response to AT&T’s complaints about its new ad campaign

Verizon was right. The truth does hurt. And it is especially painful when it’s meted out by a court of law. A U.S. District judge on Wednesday denied AT&T’s request to force Verizon to pull its “There’s A Map For That” and “Island of Misfit Toys” commercials, saying that while the ads might be “sneaky,” they are not deceptive.

“People might misunderstand [Verizon’s commercials],” said U.S. District Judge Timothy Batten, “but that doesn’t mean they’re misleading.”

He gave AT&T (T) another chance to make its case at a Dec. 16 hearing, but given his dim initial view of the company’s complaint, the carrier seems unlikely to prevail.

AT&T plans to press on with the case anyway. “While we are disappointed with the court’s decision on our request for a temporary restraining order, we still feel strongly that Verizon’s ads mislead consumers into thinking that AT&T doesn’t offer wireless service in large portions of the country, which is clearly not the case,” AT&T spokesman Mark Siegel said in an email. “We look forward to presenting our case to the court in the near future.”

In the meantime, AT&T has begun running some attack ads of its own. Sadly, the first effort is not nearly so clever as Verizon’s (VZ) and features far too much Luke Wilson and far too little humor.

PREVIOUSLY:

• Verizon to AT&T: Do Yourself a Favor and Shut Up
• Frosty’s Winter Litigation Wonderland: AT&T Demands Verizon Pull Holiday iPhone Ads [With Full Complaint]
• Verizon Banishes iPhone to Island of Misfit Toys
• Verizon on AT&T Suit: There’s a Word for That. “Junk.”
• Verizon to iPhone Users: “Want Five Times More 3G Coverage? There’s a Map for That.”

If you find this metric as astonishing as I do, consider this: The increase in Bay Area data traffic is actually below the national average–significantly below. According to AT&T (T) CTO John Donovan, 3G data traffic on the company’s wireless network has risen nearly 5,000 percent in the past 12 quarters nationally (see chart below; click to enlarge).

“Today, we’re seeing unprecedented growth in mobile broadband traffic,” Donovan said during his keynote at the Open Mobile Conference on Nov. 5. “This growth has required extensive rethinking of wireless networks as we know them, as well as significant advances in the supporting IP backbone and other infrastructure.”

A 5,000 percent increase in 3G data traffic: That’s an astonishing figure. Seems to me it’s entirely likely that any carrier that had been first with the iPhone–including catcalling rival Verizon (VZ)–would have suffered network troubles similar to those that plague AT&T today.

No other U.S. carrier offers a super-smartphone that has sold as well as the iPhone and that people use much like a laptop. Sure, Android and Palm (PALM) webOS devices are used in this way as well, but there are far fewer of them and they have significantly fewer data-hungry apps.

Research in Motion (RIMM) offers some BlackBerries that are used this way, but only some, and there are only 3,000 or so apps available for them. iPhone owners have 100,000 apps from which to choose. And while it’s obvious that there are more BlackBerries in use than iPhones, some of these rely on AT&T’s network, which only compounds the carrier’s problems.

So, really, any carrier that had been first to market with the iPhone would have seen its network overtaxed, especially after Apple (AAPL) launched the iPhone 3G and the iTunes App Store. Those events effectively upended traditional planning models for network capacity in a way that no one was prepared for.

Perhaps other carriers would have fared a bit better. Verizon’s 3G network, even back in 2007, was much deeper and broader than AT&T’s. But could it really have supported a 5,000 percent increase in data traffic without incident? I’m not so sure.

Which is not to say that AT&T is blameless. Its network has lagged and continues to do so, and the iPhone and the massive surge in data traffic it brought with it are not entirely responsible for that.

But they are obviously a big factor. It will be interesting, then, to see how Verizon’s network holds up in comparison if and when the carrier gets the iPhone.

[Image Credit: Morgan Stanley Managing Director Mary Meeker]

Make no mistake, that surge has been massive. Says AT&T (T): “Since 2008 AT&T’s network in the San Francisco area has experienced a 3G data traffic increase of 2,000 percent.”

Wow. No wonder my calls kept dropping at that last Apple (AAPL) event in San Francisco (yes, an iPhone 3G repeatedly dropping calls at Apple’s Sept. invitation-only music gathering). In any event, the upgrade, which includes the bolstering of backbone infrastructure, should result in better coverage, 3G performance and in-building penetration.

“More than ever before, customers look to wireless communications to stay in touch with family, friends and business colleagues,” said Terry Stenzel, AT&T vice president and general manager for Northern California/Reno. “The additional spectrum helps to enhance the 3G network so that our customers have the best experience when they make a call, check an e-mail, download a video or song, access applications or surf the Internet on their AT&T device.”

“Most stores we contacted reported strong follow-through sales last week and have received ‘re-stocks’ following the initial launch,” says McKechnie. “We had guesstimated ~ 200k Verizon-only ‘sell in’ prior to the launch. We now expect at least another 200k by Black Friday and 150-200k through the remainder of the holiday season, which gets us to our 600k forecast for the quarter. All stores appear ‘well stocked’ with none reporting shortages….Our checks with stores indicate no issues with returns of the Droid.”

Evidently, Verizon’s Droid saturation campaign, with a budget estimated at $100 million, is paying off–despite its impersonal sci-fi positioning.

“Now we aren’t typically the carrier that comes out and announces what we are going to be selling 12 months from now. Other carriers do that, and the media loves to speculate on what we are bringing to market. But what I will tell you is that over the next six months or so you will see devices like the Palm Pre and the cousin on our network from Palm.”

– Verizon Wireless President and CEO Lowell McAdam

For Palm, 2010 will be a year of channel expansion, with its new webOS handsets coming to more carriers. Top among them, Verizon (VZ), which has been rumored to be getting a device “like the Palm Pre” since Palm (PALM) launched it. In a research note to investors today, Kaufman Bros. analyst Shaw Wu says a Palm smartphone on Verizon is pretty much inevitable.

“Based on our checks with industry and supply chain sources, we have fairly high conviction in Verizon carrying Palm’s webOS-based smart phones sometime in 2010 (potentially as early as 1H),” Wu writes.

“The reason,” Wu explains, “is three-fold: 1) despite heavy promotion and favorable reviews, sales of Android 2.0 smart phones (MOT Droid and HTC Droid Eris) have been somewhat disappointing and below expectations; 2) strong indications point to Palm’s launch exclusive with Sprint ending in 2009; and 3) our checks show high interest in webOS from Verizon including public comments by CEO Lowell McAdam.”

Interesting, especially the comment about Droid sales. If Wu is right, the device may not prove as daunting a competitive challenge as you would think.

“It’s too early to declare game over,” Wu says. “Talking with investors, most have written off Palm as a legitimate competitor and assumed Android will be the platform of choice at Verizon and other carriers. We believe Palm still has sizable advantages with its multitouch capability and vertical integration.”