unlocking enables you to use a GSM phone on different networks.
for example, if you buy a phone from fido, that phone cannot be used with rogers even they both are gsm. if you travel, you may buy those 'pay per use' gsm cards and enable your cell phone to be used in a foreign system. the point is all about money, if you have to roam with fido say in hong kong, then fido makes $$$$, but if you put in a local HK GSM card and use the local network there, fido makes $0 and you save $$$$.
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an unlocked cell phone holds higher value especially in the used market or buying new from ebay etc.
there are a few places in toronto whom specialises in this. locking refers the limitation imposed by the cell company to restrict a gsm cell phone only be used under their network.
gsm is the global standard to mobile communications, in canada it is fido and rogers. in the US it is att, t-mobile and cingular. changing phones is as easy as changing batteries, slip in the gsm sim card and you are up and running. no programming necessary on your part, system instantly recognises your phone number. thats why people use may different phones and can change them as many times as they wish.
on another note, it is only in north america that there exist these 'locked' phones, everywhere in the world GSM phones are never locked.