How Do Cell-Phone Interceptors Work?

I came across links to digital cellphone interceptors when searching for the new Mercedes S500 Guard. Here is one link:
http://www.global-security-solutions.com/ProA-GSMInterceptandTracking.htm
The GSS-ProA is the very best GSM Cellular Interceptor off-air system available in the world today. It has features never before seen in any passive intercept system. It is a completely STEALTH - invisible and non-detectable, high performance and upgradeable, multi-channel GSM Cellular Intercept and logging (recording) system. It is not only designed to receive and process GSM digital cellular signals, but it also has a built in sophisticated RF triangulation locator with near GPS accuracy. Built-in DSP and PC software determines the processing algorithms, and special Windows based software provides an intuitive and comprehensive interface to the operator.

The GSS-ProA system intercepts GSM phones operating on both the 900MHz and also on 1800/1900MHz bands. It intercepts both, the base station and the mobile station at the same time, independently. The system will record automatically or manually all of the conversations between the two targeted phones simultaneously, and save them to a standard WAV file.

My understanding was that all digital cellphone traffic is encrpypted? I figure that the government via the cellphone provider could easilly snoop because obviously the cellphone provider is the one doing the encrypting, but perhaps I’m mistaken.

No. It’s only encrypted in some countries, and it’s often only weakly encrypted.

From what i’ve been told by people who work on the design of cellular systems, the US is generally hostile to the use of encryption in US cellular networks by anyone other than authorized government subscribers. It isn’t illegal, it’s just strongly discouraged by the federal government. Go along to get along and all that. The technology exists to provide strong end-to-end security between digital cell phones, it’s just never been made available to the public.