“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.

There is “no sign of the sort of sellout reception that greeted the smart phone at its introduction in other countries,” The Wall Street Journal reported, adding that there were no lines for the iPhone at the Apple store in Beijing, the company’s only location in China.

Sounds like a lackluster launch, and with Apple (AAPL) and China Unicom, the only carrier authorized to sell the device in the country, declining to disclose sales figures, it’s difficult to argue that it was otherwise. It clearly wasn’t the rousing success to which we’ve become accustomed. That said, it probably wasn’t quite the bust it’s been made out to be, either.

Why? Well, consider this: There were launch ceremonies in 30 provinces. To date, we’ve heard anecdotal reports from–as best I can tell–one of them. And while it’s admittedly concerning to learn that a China Unicom store in Beijing sold just 10 iPhones last Saturday, that’s just one store. The device was on sale in many, many others (1000, according to Apple COO Tim Cook) across 30 provinces and 285 Chinese cities in a nation with 710 million mobile-phone subscribers.

Finally, while it’s true that the prices Apple and China Unicom are charging for the iPhone are heady, they’re not quite as bad as we’ve been led to believe. “I think the western media has misconstrued the iPhone pricing in China,” Dan Butterfield, editor of iPhonAsia told me.

“Nine out of 10 reports that I’ve seen have simply repeated the ‘too expensive’ mantra,” Butterfield explained. “They then quote the contract free price point–4,999 yuan ($730) to 6,999 yuan ($1,025) for the iPhone 3GS. They argue that you can buy a gray-market iPhone cheaper and it has WiFi….The truth…the gray-market price is marginally cheaper for those who want to go ‘prepaid.’ But when you examine the full matrix of China Unicom price/plans, you quickly realize that you can save big by going on contract vs. prepaid (pay as you go). There are even four price/plans where your iPhone if free. The iPhone subsidy increases for those who opt for more expensive monthly plans.”

Butterfield elaborates: “Moreover, if you want to access ‘3G,’ there is no good carrier option other than China Unicom. You can run at 2G speeds on China Mobile or China Telecom. But neither of these two networks support the chipset in iPhone. China Mobile runs TDSCDMA 3G and China Telecom runs CDMA2000 3G. So you are left with China Unicom’s WCDMA 3G–a world-standard 3G protocol fully supported by iPhone 3G/3GS. Why not go on contract and get a subsidized iPhone that is well below the ‘too expensive’ (contract free) prices that the media is shouting about?”

And in the end, does it even matter? As Butterfield noted, an iPhone sale is an iPhone sale–whether it’s made by a gray-market vendor or an authorized one. And either way, it’s good for Apple.

So was the iPhone’s launch in China really a bust? “Probably not,” said Butterfield. “Was it a rousing success? Probably not. The truth is somewhere in the middle.”

UPDATE: Well what do you know: China Unicom just coughed up some first weekend sales numbers for the iPhone and … well, they’re not much to look. The carrier sold just 5,000.

Not a week after confirming its interest in the netbook market, Nokia leapt into it, uncrating the Booklet 3G–a 2.8-pound “mini-laptop” with 3G, WiFi and A-GPS support, a 10-inch HD-ready display and a claimed 12 hours of battery life. The machine will feature an Intel (INTC) Atom processor and likely run a version of Microsoft’s (MSFT) Windows. Finally, it will support Ovi, Nokia’s (NOK) version of Apple’s (AAPL) App Store.

“A growing number of people want the computing power of a PC with the full benefits of mobility,” Kai Oistamo, Nokia’s executive vice president for devices, said in a statement. “We are in the business of connecting people and the Nokia Booklet 3G is a natural evolution for us. Nokia has a long and rich heritage in mobility and with the outstanding battery life, premium design and all day, always on connectivity, we will create something quite compelling. In doing so we will make the personal computer more social, more helpful and more personal.”
 
Quite a pledge. And one that Nokia must deliver on if it’s to become a full-fledged mobile solution provider.

“Nokia is not trying to move into the extremely competitive market for PCs in general, even though it describes the Booklet 3G as a mini-laptop. What it is doing is moving to protect its key markets,” said Gold Associates analyst Jack E. Gold. “Indeed, netbooks are increasingly being sold as mobile device alternatives (or supplements) to smartphones. Many have 3G radios included, can make voice calls (via VoIP) and are increasingly being sold and subsidized by traditional wireless carriers. Therefore, it is logical to see Nokia make this move.”

Unveiled in China this morning, Dell’s (DELL) new handset, reportedly known as the mini3i, runs on China’s Open Mobile System variant of Google’s (GOOG) Android OS and sports a 3.5-inch, 640×360 capacitive touchscreen and a three-megapixel camera. It also features an iPhone-esque GUI and will support applications from China Mobile’s online store, which peddles music and videos as well as games and other apps.

But sadly, the mini3i lacks WiFi and 3G support. It’s strictly a 2G device. Odd, considering China Mobile does offer TD-SCDMA, China’s locally developed 3G standard.

That said, China’s smartphone market is wide open. With mobile phone sales in the country predicted to hit 192 million units, up from 180 million this year, according to Gartner (IT), a cheap smartphone like this could find quite a niche in the lower end of the market, assuming it’s well-priced.

News of the mini3i’s debut comes as Apple works to bring the iPhone to China via China Unicom.

On Friday, China Unicom denied a report by China Business News that the company had inked a three-year exclusive iPhone deal and agreed to purchase five million of the devices. “The report is not true,” a spokesperson said. “Talks between us and Apple have been going on for some time, but no agreement has been reached yet. There are all kinds of possibilities. There is no particular timetable for the talks.”

UPDATE: Dell claims the device displayed in China is a “proof of concept.”

“The only thing that we’re confirming is that we’re in product development with China Mobile,” he told PCMag. “We haven’t named any products, and we’re not confirming anything. We were there showing a proof of concept.

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[Image Credit: mobile.163.com]

We consider cable’s local WiFi initiatives to be nothing more than a marketing stunt.

–Verizon spokesperson Rich Young, Feb. 28, 2009

Looks like AT&T (T) and Cablevision’s decision to offer free WiFi to their subscribers has gotten a competitive rise out of Verizon (VZ), which just a few months ago was dismissing such efforts as “marketing stunts.” The Wall Street Journal reports that Verizon plans to offer its subscribers free Wi-Fi hotspot access via a partnership with Boingo Wireless. Discussions between the two companies are still progressing, but a deal is expected sometime soon with service debuting this summer — perhaps in preparation for the launch of that media tablet Verizon’s rumored to be talking to Apple (AAPL) about.

Provided by Aircell, the service will cost laptop users $9.95 for flights of less than three hours and $12.95 for longer flights. Travelers using Internet-ready handsets will pay $7.95 regardless of the length of their flight. And make no mistake, the data show they will pay. Apparently, $10 is a pittance for distraction when you’re trapped in a center seat on a packed flight with “Paul Blart: Mall Cop” as your only in-flight entertainment.

“[People are] working, they’re doing their e-mail, they’re going into their corporate networks, they’re going to their Facebook page, they’re Twittering, they’re doing YouTube and other video sites, but they’re in fact doing more of it,” Aircell CEO Jack Blumenstein told the Dallas Morning News. “The data shows that people use almost twice as much of data during the course of a session and stay on almost twice as long as when they’re at a hotel or a hotspot on the ground. People clearly are engaged by it when they’re flying.”

[Image credit: Flickr/Bekathwia]

I don’t know all the legalese concerning this issue so I’ve had some very smart people inform me about the legalities here. I do know, however, that as a performer who tours much of the country throughout the year and is involved in several live entertainment ventures, I join with fellow producers and performers across the country in bringing this matter to your attention. I have deep concern over the Commission’s announcement that it intends to vote on an order allowing devices using spectrum sensing technology to occupy the ‘white space’ radio frequencies on November 4, 2008.”

– Excerpt from Dolly Parton’s Oct. 24 letter to the FCC

Over the objections of television broadcasters, theater producers and Dolly Parton, the Federal Communications Commission Tuesday approved a plan to open up unused frequencies between television channels–known as “white spaces”–for a national broadband network. This 300MHz to 400MHz range of unused spectrum lies between channels 2 to 51 on analog television sets and is perfect for offering wireless broadband services because it’s able to carry signals long distances and easily penetrate trees and walls. And while critics argue that using them in this way might interfere with TV signals or, heaven forbid, the wireless microphones in Dolly Parton’s Broadway production of “9 to 5,” the FCC felt such concerns to be overblown and ruled the country would be better served if the spectrum were opened up for free public use.

“The proponents have argued that we can enable a whole new generation of wireless devices–bringing new broadband connectivity to our rural and urban communities–without harming free, over-the-air TV,” Commissioner Michael J. Copps said Tuesday. “Does this seem almost too good to be true? Of course. But so did the modern cellular industry, the explosion of Wi-Fi devices and so many other innovations at comparable stages in their development. Even the notion of transmitting high-quality video through the air to millions of TV sets must have seemed pretty fantastical when it was first demonstrated decades ago. This is the history of wireless innovation in a nutshell–the nearly miraculous becomes commonplace.”

Google (GOOG), which had lobbied heavily for the move, applauded the FCC’s decision, saying it would spur massive technological innovation. “This is a clear victory for Internet users and anyone who wants good wireless communications,” Google co-founder Larry Page said in a post to the company blog. “We will soon have ‘Wi-Fi on steroids’ since these spectrum signals have much longer range than today’s Wi-Fi technology and broadband access can be spread using fewer base stations resulting in better coverage at lower cost. And it is wonderful that the FCC has adopted the same successful unlicensed model used for Wi-Fi, which has resulted in a projected 1 billion Wi-Fi chips being produced this year. Now that the FCC has set the rules, I’m sure that we’ll see similar growth in products to take advantage of this spectrum.”

Not if the National Association of Broadcasters has anything to do with it. In a statement the NAB said that “every American who values interference-free TV should be concerned by today’s Commission vote” and vowed to fight it “on behalf of the 110 million households that rely on television for news, entertainment and lifesaving emergency information.”

(Image credit: magerleagues/Flickr)