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What does is mean if a phone is factory unlocked?

I'm looking to buy an iPhone 4s on Ebay and the description says it's factory unlocked. I'm a little confused on what that means. Currently I have a two year contract with T-Mobile.

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To have a factory unlocked mobile will enable you to use any SIM card in your phone. If the phone is a quadband, it can be used with any sim card from any carrier - anywhere in the world.

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