“The cost of smart phones is considerably higher than feature phones for which the early termination fees were created years ago at $175,” said Verizon spokesman Jim Gerace. He added that the new $350 ETF declines by $10 per month through the life of the contract and customers can avoid it by buying their devices off contract and paying full retail price.

An interesting move for Verizon (VZ), which just last year agreed to pay $21 million to settle a class-action lawsuit filed by California consumers over the very early-termination fees it is now increasing. The plaintiffs in the suit alleged that Verizon’s ETFs were illegal under California law and that they were designed to unfairly lock consumers into long-term contracts and prevent them from switching carriers. When Verizon settled the suit, it denied any wrongdoing, insisting that early-termination fees are simply a means of recovering legitimate costs. And to some extent Verizon does have a point.

Full retail price for the Motorola’s (MOT) new Droid is $559.99. With a two-year contract, Verizon sells the handset for $199.99. Theoretically, that’s a $359.99 subsidy (I have no idea at what price Verizon purchases Droid from Motorola). So if Verizon allowed subscribers to break their contract after a month without paying an early-termination fee, the company would stand to lose money. And subscribers who did so could subsequently sell the device online and potentially make a profit, though a small one.

So it’s certainly understandable that Verizon and other carriers want to protect the subsidies they dole out for these new smart phones. And as noted earlier, Verizon’s new ETF drops by $10 each month a subscriber remains under contract. But at this rate, subscribers are still bound to pay a $110 termination fee in the 23rd month of a two-year contract. The contract is nearly over, the subscriber obligation to Verizon almost fulfilled, yet the company can still slap its customers with nearly a third of the full ETF if they break it at that time.

By month 23 of a two-year contract, does Verizon really stand to lose $110 if subscribers decide to switch carriers? Doesn’t seem likely if subscribers can walk away just a month later without consequence, taking their handsets with them.

Since Verizon is pro-rating the ETF, why isn’t it doing so in such a way that it zeroes out by the end of the contract?

And isn’t the fast pace of innovation in the smart-phone sector such that prices–for both component and device–are dropping so quickly that high ETFs aren’t really justified? Remember, you can get Apple’s (AAPL) iPhone for $99 today. When the iPhone debuted in 2007, it commanded a price of $499/$599, depending on model.

I’ve put those same questions to Verizon and will update here when I hear back. In the meantime, here’s what Consumers Union policy analyst Joel Kelsey has to say on the matter: “When people want to switch wireless services, the biggest cost they face is early termination fees. These fees are designed to lock people into long-term contracts and stop them from getting better deals. Early-termination fees make the marketplace less competitive. Verizon’s move is painful proof that it’s time for lawmakers to crack down on these fees.”

UPDATE: Verizon Wireless spokesperson Nancy Stark offers the following answers to the questions I posed above:

Your first question regarding the balance at month 23 or 24 assumes that, at that point, we have recovered all of our subsidy and up-front costs for every device. That simply is not so.

On your second question, while the pace of innovation plays a role in prices coming down somewhat, it also plays a role in driving up costs as more and more complexity that customers want is added to phones–from premium HTML browsers to high-resolution MP cameras with optical zoom; videoplayers; music players; dual processor chipsets; WiFi; very high display resolution, operating systems such as BlackBerry, Windows Mobile, Palm, Android–ALL with the added value (vs a desktop) of mobility, and ALL in one tiny device that ALSO allows you to talk to anyone from anywhere. phew! (by comparison, I recently paid $200 for a camera and all it can do is take pictures, and it has only middle of the road capabilities.)

But getting back to ETFs specifically. The most important point is that Verizon Wireless customers do not have to have an ETF at all if they do not want to. ETFs allow customers to have it either way: They can have no ETF and pay full retail for their device. OR, they can get a greatly discounted device by having an ETF.

Apple TV 3.0 is largely as rumored: Adding support for Internet radio, Genius Mixes, iTunes LP and iTunes Extras (bonus clips, interviews, etc.). But it boasts another new feature as well: A redesigned user interface.

Whether the debut of Apple TV 3.0 heralds a hardware refresh of the device itself is anyone’s guess. It is worth noting, though, that there’s been quite a bit of speculation recently that Cupertino is working on an overhauled device that will offer DVR capabilities and support iTunes TV show subscriptions.

As Piper Jaffray analyst Gene Munster wrote back in August: “Apple could leverage its deep library of content with many network and cable channel content owners to provide unlimited access to a sub-library of its TV shows for a standard monthly fee ($30 or $40 per month).”

According to Munster, “Such a product would effectively replace a consumer’s monthly cable bill (~$85/month) and offer access to current and older episodes of select shows on select channels. The selection would dictate the value, and several tiers could be offered, but we see this as one way for Apple to leverage its large iTunes content library as well as its unique Apple TV hardware in order to get digital video to the TV for a price significantly less than the average cable or satellite TV bill.”

Sounds sweet, right? And it would be sweeter still if it were to offer App Store support and allow users to control games and other apps via iPhone or iPod touch …

Below, the official Apple (AAPL) release:

Apple Introduces Apple TV 3.0 Software With Redesigned User Interface

Enjoy iTunes Extras, iTunes LP & Genius Mixes on Your HD TV

CUPERTINO, Calif., Oct. 29 — Apple® today introduced new Apple TV® 3.0 software featuring a redesigned main menu that makes navigating your favorite content simpler and faster, and makes enjoying the largest selection of on-demand HD movie rentals and purchases, HD TV shows, music and podcasts from the iTunes® Store even better on your TV. You can now enjoy iTunes Extras and iTunes LP in stunning fullscreen with your Apple TV, as well as listen to Genius Mixes and Internet radio through your home theater system. The new Apple TV software is available immediately free of charge to existing Apple TV owners, and Apple TV with 160GB capacity is available for just $229.

“The new software for Apple TV features a simpler and faster interface that gives you instant access to your favorite content,” said Eddy Cue, Apple’s vice president of Internet Services. “HD movies and HD TV shows from iTunes have been a huge hit with Apple TV customers, and with Apple TV 3.0 they get great new features including iTunes Extras, Genius Mixes and Internet radio.”

The redesigned main menu on Apple TV gives you instant access to your favorite content. Recently rented or purchased movies, as well as other content including TV shows, music, podcasts, photos and YouTube, are accessible directly from the new main menu. The new software also allows Apple TV users to enjoy stunning fullscreen iTunes Extras and iTunes LP, including great new movie titles such as “Star Trek” or classics like “The Wizard of Oz” and albums such as Taylor Swift’s “Fearless (Platinum Edition)” and Jack Johnson’s “En Concert.” iTunes Extras gives movie fans great additional content such as deleted scenes, interviews and interactive galleries. iTunes LP is the next evolution of the music album, delivering a rich, immersive experience for select albums on the iTunes Store by combining beautiful design with expanded visual features like live performance videos, lyrics, artwork, liner notes, interviews, photos, album credits and more.

Now Apple TV users can enjoy Genius Mixes through their home theater system and listen to up to 12 endless mixes of songs that go great together, automatically generated from their iTunes library. Customers can also enjoy Internet radio, allowing them to browse and listen to thousands of Internet radio stations, as well as tag favorite stations to listen to later. Apple TV’s support of HD photos is enhanced with iPhoto Events, which simplifies finding your favorite photos on Apple TV, as well as iPhoto® Faces, which gives access to photos organized by people identified in iPhoto.

Apple TV users have direct access to a catalog of over 8,000 Hollywood films on iTunes including over 2,000 in stunning HD video available for rent or purchase. Users can also choose from a selection of 11 million songs, 10,000 music videos and over 50,000 TV episodes to purchase directly from their Apple TV or browse and enjoy the iTunes Store podcast directory of over 175,000 free video and audio podcasts. Purchases downloaded to Apple TV are automatically synced back to iTunes on the user’s computer for enjoyment on their Mac® or PC or all current generation iPods or iPhones.* iPod touch® or iPhone® users can download the free Remote app from the App Store to control their Apple TV with a simple tap or flick of the finger.

“This exclusive partnership offers you the ability to instantly stream movies and TV episodes from Netflix to the television via Xbox 360. Xbox 360 will be the only game console to offer this movie-watching experience, available to Xbox LIVE Gold members who are also Netflix unlimited plan subscribers…at no additional cost.”

– Microsoft on its Xbox 360/Netflix partnership, Aug. 2009

So much for Xbox 360’s game console exclusivity on Netflix streaming. This morning, the DVD-by-mail pioneer said that beginning sometime next month, owners of Sony’s PlayStation 3 game consoles will be able to stream movies and TV shows from Netflix.

The feature, which brings an unlimited amount of online viewing with any subscription worth $9 or more, will initially require an “instant streaming Blu-ray disc” to enable it. Not the most elegant of implementations, but presumably a firmware upgrade will likely follow and bake the feature into the PS3.

For Netflix (NFLX), the deal provides a chance to broaden its subscriber base. About nine million PlayStation 3 systems have been sold in U.S., and more than 25 million worldwide. So the potential for new customers here is substantial. For Sony (SNE), which already offers movies and TV shows to PS 3 users for a $3 to $4 fee, it’s a way of removing an Xbox 360 marketing advantage Microsoft (MSFT) has been lording over it since this past August.

For one thing, Palm (PALM) is waiving its $99 app submission fee for open-source webOS apps. For another, it’s giving developers the option of selling their apps through the App Catalog or via a Web-based storefront.

The first option entails a $50-per-app fee and requires review and approval by Palm. This includes the chance to bid on priority placement in the App Catalog if developers wish. The second option requires neither fee nor review and allows developers to distribute their apps over the Web with Palm handling transactions and fulfillment–assuming the apps conform to Palm’s content and user interface criteria.

“By opening up a web distribution channel free from our review, we are placing a great deal of trust in you–the developer–and the community,” Palm said on its blog. “We want you to embrace these principles, establish a high bar of quality and user experience, and help enforce these rules.”

An interesting strategy–assuming developers do establish the high bar of quality to which the company refers. Certainly, it’s very different from Apple’s (AAPL) approach, which includes an application-approval process criticized as obtuse and byzantine. By offering developers the chance to pay to promote their software in its Apps Catalog or to distribute it via the Web without having to suffer through an approval process, Palm is positioning its program as the polar opposite of Apple’s. Question is, are these enticements enough to win their attention?

Under the new system, anyone can register as a TLD any combination of letters and numbers they like, their range limited only by the breadth of their own imaginations and the $100,000 and $500,000 fee ICANN plans to charge. So, ICANN’s domain, for example, could become MassiveTechnical.Problems, Total.Chaos, Utter.Confusion or Cluster.F … well, you see my point.

“We are opening up a new world, and I think this cannot be underestimated,” said ICANN member Roberto Gaetano. And that’s an understatement if I ever heard one. Because, when the adult-entertainment industry catches wind of this … well, let’s just hope .xxx will be the least of our worries. How many slang terms for sexual anatomy can you think of?