Why is higher freq. being used to deploy GSM?

I don't think there are any 850 Mhz GSM phones out yet that would let you use that band. Several have been announced but I don't think any are out yet.

 

In the case of T-Mobile, they got 1900 MHz frequency ('PCS') which means they don't have to support analog (AMPS) - all 800MHz carriers in the U.S. and Canadia must support analog until 2007.

 

First I must clarify that a carrier can't just to deploy on any band it chooses. It must have a licence for that band in a particular market.
In AT&T's case for example, it may have only a license for 1900 in a market or only a license for 800 in a market or it may have licenses for both 800 and 1900 in a market. AT&T will deploy GSM 1900 first because of the availability of handsets for that band. For its 800 only markets AT&T (this applies to Cingular as well) will "carve off" spectrum from its TDMA network and use this spectrum to deploy its GSM 800 network.

GSM 800/1900 dual band phones will be the norm in the future for U.S. GSM carriers.
GSM 800 will be the prevelant band in the U.S. within the next 1 to 2 years.
GSM 800 does exist and works nicely - I use a Nokia 3590 daily on GSM 800.

GSM 800/1900 Dual-band Appetizer:

Disclaimer: This is not by any means a complete list. I am not liable for any errors or "anticipational let downs". Take all of this with a grain of salt, lime and Tequilla.

Nokia:
3590 (GSM 800/1900, GPRS, Java)
6590 (GSM 800/1900, GPRS, MMS)
6340i (GAIT: GSM 850/1900, TDMA 850/1900, AMPS)

Motorola:
C331g (GSM 850/1900, GPRS)
T720 (GSM 850/1900, GPRS, Java, Color display)

SonyEricsson:
T62u (GAIT: GAIT: GSM 850/1900, TDMA 850/1900, AMPS, GPRS)

Siemens :
CT56(GSM 800/1900, GPRS, Java), A56 (GSM 800/1900)

Sendo :
S251 (GSM 800/1900, GPRS)

Samsung:
S107 (GSM 800/1900, GPRS, Java)

 

Properly deployed, 1900Mhz systems can provide coverage just as good as 800Mhz systems. They just need sites placed closer together which means more tower density. As to why wasn't GSM deployed at 800Mhz, its because when GSM came to the US, existing carriers were already using TDMA, CDMA or analog at 800Mhz so no more room was left to implement a new network. They had to choose 1900Mhz which was what the FCC allocated for wireless network expansion. Now that the GSM fever came along, TDMA carriers will be migrating their TDMA systems to GSM whether they are at 800Mhz or 1900Mhz so there will be both 800 and 1900 GSM like TDMA 800 and 1900 is today and then eventually TDMA will be on its way out to be replaced by GSM entirely. There are many phones coming that will support GSM 800. Availability may be as soon as next month.

Nokia 3590
Nokia 6590
Nokia 6340i
Ericsson T62u
Motorola C332 / C331g
Motorola T720
Siemens C56
NEC MP6J1E1-1E/F