New, unlocked cell phones

A locked cellular phone is one which has been customized in order that it can only be used with a particular cellphone network.

Cellphone carriers do it so that they can attract customers by offering them phones, often new models, at cheap prices and sometimes even for free. In return they want the user to subscribe to their network for a specified period, so they lock the phone so it cannot be used on any other network.

The most notorious example of this is the Apple iPhone, which can only be bought with a AT&T contract in the US, or an O2 contract in the UK.

An unlocked cellphone is either a new or second-hand handset that has usually had its software modified so that it can be freely used with other networks.

The benefits of this are that YOU get to choose which network to use AND which phone you use. It also means that you can use a local SIM card when you go abroad, instead of paying extremely expensive roaming charges to your carrier.

Disadvantages:
- unlocked cellphones are not always quite as "new" as they are advertised. They may be "nearly new", bought through a pay-per-go package, decoded and sold on
- they may be more expensive than buying the same phone with a contract, since the phone company is not subsidizing the cost
- they may still have the firmware of the original carrier installed, which may not be possible to remove and may limit the features in some way, or display the carrier's logo all over the place
- only GSM-based phones can be unlocked, CDMA network phones can't be modified

Advantages
These surely outweigh the disadvantages:
- you are not tied into a contract with the phone
- you can buy EXACTLY the phone you want, without having to go with a particular carrier, yes, even an iPhone!
- you can use it abroad and buy a local SIM card, saving LOTS of money on roaming charges

In short - yes it is legal! There are no countries that specifically prohibit unlocking or buying an unlocked cellphone.

You can find many new and unlocked cellphones listed for sale at NewAndUnlocked.com, many of them at cheap prices.