Researcher Karsten Nohl has recently presented at Chaos Communication Camp 2011 a way of intercepting GPRS traffic. What that means is that now you can read the traffic that your neighbor is doing on his phone, at least if he uses GPRS/EDGE.
Along with Luca Melette, Karsten was able to decrypt the GPRS data by using a modified phone, loaded with OsmocomBB baseband software. What’s interesting is that, during the research, they discovered some operators that do not use encryption at all because it would be easier to block content like VoIP, Skype and so on.
If you want to read the slides, here they are: click
My advice: set you phone to use 3G as a preferred network, not only because of the GPRS issue, but due to other GSM security issues.
UPDATE: See the videos here: CCC 2011 videos