Tempted by Google's new Nexus One phone but having second thoughts? If you're going to break your two-year contract on the subsidized model, make sure you do it in one of two ways: within 14 days of acquiring the phone or after four months of phone usage. Canceling at any point between 14 days and 120 days subjects you to a set of terrific fees, payable both to Google and T-Mobile.

And these go far beyond just paying back the device subsidy.

The fine print

You'll need to read the fine print to figure this out—or, to be more accurate, you'll need to read two sets of fine print. The first covers the sale of the phone from Google.

In this terms of sale document, Google makes clear that "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."

This Equipment Recovery Fee will run US users $350 under the currently available T-Mobile subsidy plan, and Google will charge it to the credit card used during the device purchase. Well, fair enough; if a phone is subsidized by a two-year service contract, one could argue that it's only right to pay back the remaining subsidy when you cancel.

But Google goes on to 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 in connection with termination of your wireless plan prior to fulfillment of your chosen carrier's service agreement term." It also stresses that this fee is not a "penalty."

A look at T-Mobile's terms and conditions makes clear that you'll be paying a hefty second fee if you cancel within those first four months (helpfully in all caps for extra emphasis).

THE EARLY TERMINATION FEE IS: $200 IF YOU TERMINATE WITH MORE THAN 180 DAYS REMAINING ON YOUR TERM; $100 IF YOU TERMINATE WITH 91 TO 180 DAYS REMAINING ON YOUR TERM; $50 IF YOU TERMINATE WITH 31 TO 91 DAYS REMAINING ON YOUR TERM; AND THE LESSER OF $50 OR YOUR MONTHLY RECURRING CHARGES (including any applicable taxes and fees) IF YOU TERMINATE IN THE LAST 30 DAYS OF YOUR TERM. The Early Termination Fee is part of our rates and is not a penalty.

Bottom line: canceling the contract in the first four months leads to $550 in charges (don't call them penalties!), on top of the $179 paid for the phone itself. After four months, only the T-Mobile fee applies.

The benefits of being European

There is another way out of the contract. T-Mobile allows for a no-fee contract break within the first 14 days of service, and Google agrees not to charge its Equipment Recovery Fee within those same 14 days. Google will charge a $45 restocking/refurbishing fee, however, unless you live in Europe.

Thanks to consumer protection laws allowing people a few days to escape certain contracts without penalty, "residents of the EU will not be charged the $45 USD restocking/refurbishing fee when cancelling these Terms within the fourteen-day period and will be refunded the shipping fees paid for initial delivery of the Device."

One a buyer hits the 15th day, however, the fees increase from $45 to $550, so it pays to make a quick decision if you're on the fence about your new phone.

Standard operating procedure

Paying fees to Google and to T-Mobile, fees that far exceed the device subsidy, seems rather odd, so we checked in with Google for comment. A spokesperson tells Ars that recouping the full subsidy is "standard practice for third-party resellers of T-Mobile and other operators, and you will find similar policies for other mobile service resellers." As for T-Mobile's decision to levy another $200 on top of the subsidy, we would have to consult them. (Which we did; we received no response.)

A fee magnet... for four months

The situation might just be a private matter between a Nexus One buyer, her pocketbook, Google, and T-Mobile... except for the fact that the Federal Communications Commission has taken a recent interest in early termination fees (ETFs) for cell phones.

Back in December, the FCC dashed off a letter to Verizon, asking why the company was doubling some of its ETFs to $350. The agency was especially troubled to find that, with one month left on a two-year contract, a subscriber who canceled service would still owe a $120 ETF. Reading between the lines, the FCC is fine with ETFs as long as they simply cover the remaining subsidy; when they exceed the prorated subsidy amount, however, regulators are now taking a closer look.

The issue has also raised hackles in Congress, where Senator Amy Klobuchar (D-MN) has railed against Verizon's ETF increases and introduced the Cell Phone Consumer Empowerment Act.

In addition, huge class-action lawsuits over ETFs have proliferated in the last several years over perceived unfairness in their application. Many mobile operators, for instance, used to apply a full ETF across the entire life of the contract—cancel with only a day left and you would still pay the entire fee. That practice has largely ended thanks to regulatory scrutiny and lawsuits. In May 2009, T-Mobile agreed to pay $11 million to end a lawsuit over flat rate ETFs. Sprint agreed to settle for $14 million over the same issue.

In such a climate, introducing a hot new phone with a set of combined fees that can actually be more expensive than the unsubsidized device itself might seem to be a risky move, coming only weeks after the FCC went after Verizon on a similar issue. But if there's one thing you can say about Google, it's that the company is not afraid to wade into controversy. This is the company, after all, that started scanning millions of in-copyright books, that bought YouTube at a time when the site was an obvious lawsuit magnet (and now faces a $1 billion court case), and that introduced the Nexus One just at the right moment to sap momentum from Verizon's Android-using Droid phone. ETFs are probably the least of its worries.

But the FCC is watching the industry, as is media reform group Free Press. The group's policy counsel, Chris Riley, tells Ars, "While we are glad the Nexus One is being sold unlocked, excessive early termination fees like the reported double penalty still harm consumers and competition. Google, like any other company, should not punish its customers, and the FCC must step up to protect consumers from unfair penalty fees."