The 850 band can do 3g as well as legacy GSM/GPRS/EDGE -- Generally there are less association spots available on it, and it wasnt used in densly populated areas for a reason, but it does seem to be about all they can do at this point. The style of system AT&T uses is far less efficient in terms of equipment space and what not VS verizon or sprint. In San Francisco thats part of the problem-- there is only so much ability a single sector can have.. Period. The only solution would be to add MORE towers, and decrease the coverage radius of each one so that fewer clients can associate to it. Verizon's system on the other hand, can do ALOT more with far less hardware. Typically, an equal sized Verizon site will have 1/3 the equipment or less. The max association count is also higher per card by a substantial amount VS AT&T. The draw back to Verizons system is that is not quite as flexible as is vs AT&T's system. Voice / Data at the same time for example.
Bottom line: AT&T is boned.