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.”

In the past, Apple (AAPL) has said that many more songs will be priced at 69 cents than at $1.29. But that 69-cent bargain bin is viewed as little consolation to some who question the wisdom of introducing what amounts to a 30 percent price increase with the economy in recession and online piracy an easy option.

Said Nine Inch Nails manager Jim Guerinot, “Wouldn’t it make sense to try to price it cheaper instead of squeezing the handful of people who are still willing to pay for music?”

Perhaps. But when has the recording industry ever done anything that made sense?

Eventually we’d like to make money out of it.”

Google CEO Eric Schmidt on YouTube

It’s been two years since the $1.65 billion acquisition and Google (GOOG) has yet to truly monetize YouTube. And while Google CEO Eric Schmidt insists the company has the “luxury of time” as it searches for ways to recoup its investment in the popular video site, it’s clear the issue is gradually becoming more pressing. “We’re waiting for the innovations,” Schmidt said recently. “The innovation will come. We know it will come. We know it’s there.”

Could the “it” to which Schmidt refers be the new e-commerce platform YouTube is launching? Perhaps. Beginning this week, YouTube is embedding “click-to-buy” links in certain videos on its site, which refer users to affiliate services selling the music featured in them. “Click-to-buy links are non-obtrusive retail links, placed on the watch page beneath the video with the other community features,” YouTube explained in a post to the Official Google Blog. “Just as YouTube users can share, favorite, comment on, and respond to videos quickly and easily, now users can click-to-buy products–like songs and video games–related to the content they’re watching on the site.”

An interesting idea. And should it prove successful, it could begin to justify YouTube’s jaw-dropping $1.65 billion purchase price. “This is just the beginning of building a broad, viable e-commerce platform for users and partners on YouTube,” the company explained. “Our vision is to help partners across all industries–from music, to film, to print, to TV–offer useful and relevant products to a large, yet targeted, audience, and generate additional revenue from their content on YouTube beyond the advertising we serve against their videos. And those partners who use our content identification and management system can also enable these links on user-generated content, by using Content ID to claim videos and choose to leave them up on the site.”

This morning, Sony BMG became the second record label to jump on board the Finnish phone giant’s Comes With Music offering, which–when it launches in the second half of 2008, will package mobile phones with a year of unlimited access to music. There are, however, certain caveats to that value proposition, as I pointed out last December:

Though Comes With Music does indeed permit owners of certain Nokia cellphones to download as many songs as humanly possible in one year (with no per-song data charges), transfer them to a PC and keep them at the end of that time, they must pay a per-song usage fee to burn them to CD. What’s more, the songs are wrapped in Microsoft’s (MSFT) ironically named ‘Plays for Sure’ digital-rights management scheme, which prevents them from being played on the iPod, Zune, etc. Finally, another 12 months access to the music catalog requires the purchase of a brand new phone.”

Clearly, Sony, like Universal (VIV.PA) before it, doesn’t see these issues as off-putting to consumers. “When you give consumers the key to the candy store without any limitations, there’s a lot more opportunity for discovering music that you might not have found before,” said Thomas Hesse, president of global digital business and U.S. sales for Sony BMG Music Entertainment. “We think this will energize the discovery of music.”

It might energize Sony BMG’s bottom line a bit as well. When Universal first signed up for Comes with Music, sources close to the company said that Nokia would pay the label up to $35 for every phone that offers access to its library. Nokia subsequently denied it was paying that amount, but it’s definitely paying something–to Universal, Sony and whatever other labels it manages to line up for the service.

Which is essentially what Qtrax, which claims to be the world’s first free and legal peer-to-peer music service, has done. Qtrax launched over the weekend with the alleged support of EMI, Universal, Warner and Sony. Today, all four labels are saying that while they have discussed relationships with Qtrax, they have not inked any formal agreements. “EMI Music had an initial agreement with QTrax, essentially a license designed to help them experiment with this ad-supported model,” an EMI spokeswoman told Wired. “QTrax didn’t launch the service during the period of the agreement–I think we initially did this two years ago. We’re now in talks with the company about a possible new deal, but as of today, they don’t have a license with EMI Music.”

A source inside Warner told the Times Online a similar story: “Warner Music Group has not authorized the use of our content on Qtrax’s recently announced service.”

Oh, but it will. Just you wait, says Qtrax CEO Alan Klepfisz, who admits that the “ink hadn’t dried” on some of the company’s claimed deals. “We are not idiots,” he told the Times Online.”We wouldn’t have launched the service in front of the whole music industry unless we had secured its backing. We feel we have been unfairly crucified because a competitor tried to damage us. Everyone is very upset. We do have industry agreements including the major labels. Even today we are working on more deals.”

The DOJ says the $222,000 in damages awarded to the Recording Industry Association of America in the Virgin Records America et al. v. Thomas copyright-infringement case is constitutional. Seems it didn’t quite buy Thomas’s argument that fining someone – particularly a single mother of two – $222,000 for songs that could be bought for $24 on iTunes violates a Supreme Court precedent that prohibits fines that are “so severe and oppressive as to be wholly disproportioned to the offense or obviously unreasonable.”

From the DOJ’s brief:

Although defendant claims that plaintiffs’ damages are 70 cents per infringing copy, it is unknown how many other users–‘potentially millions’–committed subsequent acts of infringement with the illegal copies of works that the defendant infringed. Accordingly, it is impossible to calculate the damages caused by a single infringement, particularly for infringement that occurs over the Internet. Furthermore, plaintiffs contend that their witnesses ‘testified to the substantial harm caused by the massive distribution of their copyrighted sound recordings over the Internet, including lost revenues, layoffs and a diminished capability to identify and promote new talent…’

“Most recently, Congress has crafted a statute that serves as a deterrent to those infringing parties who think they will go undetected in committing this great public wrong, as well as providing compensation to copyright owners who have to invest resources into protecting property that is often unquantifiable. Accordingly, given the findings of copyright infringement in this case, the damages awarded under the Copyright Act’s statutory damages provision did not violate the due process clause…”