Badly enough to eat an early termination fee to get one.

A survey by newly-founded Consumer Intelligence Research Partners (CIRP) shows that many consumers were willing to break their wireless service contract to get a new iPhone — even if it meant being slapped with the outsize penalties carriers often charge for doing so.

Of the iPhone purchasers CIRP surveyed between Oct. 31 and Nov. 10, 45 percent said they had broken a contract with their current or previous carrier to buy or upgrade to the device. Of those, more than 70 percent paid an early termination fee greater than $100 to do so.

That’s a stiff penalty and a significant increase in cost, particularly when you add it to the $199 to $399 price of a new iPhone 4S, which 90 percent of CIRP’s respondents opted for. Unless it was mitigated by the high resale value of the late-model iPhones they ultimately replaced. Always a possibility.

Still, no one likes paying ETFs, even if their cost is underwritten by the sale of an older device. The fact that so many consumers are willingly doing so says a lot about the iPhone’s mindshare.

A few other tidbits froms CIRP’s survey:

• 71 percent of the iPhone purchasers surveyed upgraded from an earlier iPhone; 18 percent switched from another smartphone.
• 37 percent of respondents switched carriers to purchase an iPhone.
• 17 percent of respondents purchased a Sprint iPhone, 34 percent a Verizon iPhone, and 49 percent an AT&T iPhone.

The increase comes amid speculation that AT&T’s (T) iPhone-exclusivity deal with Apple (AAPL) is nearing its end. But a company representative tells me it has “nothing to do with the iPhone or any other device.”

$325. That’s a pretty steep increase from $175. Though to be fair, it’s not quite as bad as the one already implemented by rival Verizon (VZ). Last November, that carrier doubled its smartphone ETF from $175 to $350, a move AT&T was quick to cite as partial justification for its own decision.

And, indeed, the company is following in Verizon’s footsteps here. Like its rival’s ETF, AT&T’s drops $10 per month for each month of a two-year contract. Which means that at the 23rd month of a two year contract, AT&T subscribers must pay $95 to leave the carrier. The contract is nearly over, yet subscribers are obligated to pay nearly a third of the full ETF if they break it at that time.

Now it’s true that ETF’s were created as a means of recovering legitimate costs associated with subsidizing mobile phones. If AT&T is paying a $325 subsidy for the iPhone, the company should be able to recoup that money when customers break their contracts. But does it really stand to lose $95 if they do so in the 23rd month? Doesn’t seem likely if those customers can walk away just a month later without consequence, taking their handsets with them.

On Tuesday, the agency sent a letter to the search company inquiring about the $350 “equipment recovery fee” it has attached to its new Nexus One phone. Levied in addition to a $200 termination fee from T-Mobile, Google’s charge means that Nexus One users who cancel service in under 120 days face a total of $550 in penalties.

“The combination of ETFs from Google and T-Mobile for the Nexus One is unique among the four major national carriers,” the FCC said in its letter. “Consumers have been surprised by this policy and by its financial impact. Please let us know your rationale(s) for these combined fees, and whether you have coordinated or will coordinate on these fees and on the disclosure of their combined effect.”

Among the other questions put to Google:

• Does the ETF itself vary by device (e.g., higher ETFs for advanced devices)? If higher ETFs apply to a certain class of devices, exactly how is that class defined?
• Are ETFs prorated so that the customer’s liability decreases over time? If so, what is the exact schedule by which they are prorated?
• Press reports and public statements from wireless companies have attributed ETFs to several different factors. What is the rationale for your ETF(s), and how specifically do the structure and level of those ETF(s) relate to that rationale?

Google (GOOG) has previously dismissed questions likes these, claiming fees like those it has implemented are “standard practice” for third-party resellers of mobile service, who are only trying to recoup subsidies they offer customers who sign up for multiyear service contracts.

But that doesn’t quite explain why the fees charged by Google and T-Mobile together amount to far more than most ETFs. Now that the FCC is asking, Google will have to offer a more complete explanation.

From the Nexus One Terms of Sale:

You agree to pay Google an equipment subsidy recovery fee (the “Equipment Recovery Fee”) equal to the difference between the full price of the Nexus handheld device without service plan and the price you paid for the Nexus handheld device if you cancel your wireless plan prior to 120 days of continuous wireless service. For example, if the full price of the Nexus handheld device without service plan was $529 USD and the price you paid for the Nexus handheld device was $179 USD with a service plan, the Equipment Recovery Fee you pay will be $350 USD in the event you cancel within the first 120 days of carrier service….

You agree that the Equipment Recovery Fee is not a penalty but is for liquidated damages Google will incur as a result of such cancellation. These damages may include, but are not limited to, loss of compensation and administrative costs associated with such cancellation or changing of wireless service provider(s), market changes, and changes in ownership. Please note that the Equipment Recovery Fee is imposed by Google and not your chosen carrier and is in addition to any early termination fees that may be charged by your chosen carrier [emphasis added] in connection with termination of your wireless plan prior to fulfillment of your chosen carrier’s service agreement term.

The costs of canceling a T-Mobile Nexus One contract within the first four months after purchase, then, are as follows:

• $179 USD, the purchase price of the device.
• $200 USD, the early-termination fee T-Mobile assesses for contracts canceled with more than 180 days remaining on term
• $350 USD, Google’s equipment recovery fee

Grand total: USD $729.

That’s $200 more than the cost of the device unsubsidized.

So if you’re unhappy with the Nexus One you purchased on contract, do yourself a favor and wait at least four months before terminating it.

What was it that Google VP of Engineering Andy Rubin said last week? Something about making the cellphone purchasing process simple and worry-free? If that really is the goal here, implementing ETFs that make canceling a Nexus One contract more expensive than the price of the unsubsidized device itself hardly seems a good way of going about it.

I’ve asked Google (GOOG) to explain the rationale behind its $350 equipment recovery fee and will update here if I’m given one.

UPDATE: This just in from Google:

Google provides a subsidy for devices purchased with T-Mobile USA service. If a consumer cancels service after 14 days, Google recoups this subsidy in the form of an equipment recovery fee. After 120 days, the equipment recovery fee will no longer apply. This is standard practice for third party resellers of T-Mobile and other operators, and you will find similar policies for other mobile service resellers.

The T-Mobile early termination fee is separate and handled by T-Mobile.

“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.

The ruling comes as the Federal Communications Commission considers regulating ETFs on a nationwide basis.

The ruling comes as the Federal Communications Commission considers regulating ETFs on a nationwide basis.