The image of a computer hacker is usually one of someone trying to break into a bank's computers to steal money. Any type of hacking is obviously illegal, so what does "hacking your cell phone" actually mean?
When people talk about hacking a phone or any other electronic product, it usually means modifying your phone to change the functionality. When you buy a phone, phone companies sometimes change or lock the phone from when it was manufactured. They do this so you can not easily change to another carrier or switch to a cheaper service.
When you buy a phone from a cell phone company, they usually subsidize the cost of the handset as they know they will make the money back from the call and data charges.
If you can buy a cell phone directly from a cell phone manufacturer, you can basically use any service you like. The cell phone companies lock down the phone using software. Your phone however can be "unlocked". Depending on the model of your cell phone, you can usually find some instructions on the internet to unlock your phone.
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A SIM card is basically a small card that slots in underneath the battery of your phone and it stores your telephone number and carrier information. If your phone is unlocked, you can use any SIM card you like.
One of the biggest advantages of having your phone unlocked is that when you travel overseas you can just buy a local SIM card at your destination. If you don't unlock your phone when you travel and use your own carrier's service, the global roaming fees can be exorbitant.
By buying a local SIM card at your destination, you can call people in that destination, using local rates. If you do need to make an international call, it is often still much cheaper than using your carrier's global roaming service.
People who travel frequently often buy a different SIM card for each country they travel to. There are shops in the US that sell SIM cards for different countries. Another option is to buy a global SIM card, which can work in almost any country you visit. You can even purchase them from Amazon.
Cell phone companies also make money from selling additional services like ring tones and games. Cell phone companies sometimes restrict the places where you can buy ring tones from, so they can maximize their profits. By modifying or hacking your cell phone, you can make it so you can get things like wallpapers and ringtones for free.
Modifying an iPhone to bypass Apple's official application store is referred to as "jail breaking". This can be done by using an unofficial installer such as Cydia. There are some fantastic Cydia themes available for your iPhone.
By modifying or hacking your cell phone you could be breaching your cell phone contract. Apple have said that jailbreaking your iPhone is illegal and a breach of copyright, or the DMCA (Digital Millennium Copyright Act) Some groups like the Electronic Frontier Foundation have disputed the claim.
Cell phone companies subsidize the cost of cell phone handsets to entice new customers to purchase a new phone. Not surprisingly they do everything they can to maximize their revenues once you have purchased the phone and use their service, including exorbitant rates for using your cell phone overseas using their global roaming service. If unlock your cell phone you can use a local SIM card at your destination and save hundreds of dollars on your calls.