I have only a basic understanding of 'chipped' modems. You were probably right to turn it down. They are illegal and the penalties are high if caught using one.
If I'm correct, firmware in the router is adjusted to facilitate a different internet plan connection through the modem, which is most likely a better one than the original (2Mb line to 20Mb for example).
Any half decent ISP will detect the fluctuations/changes in your bandwidth usage quickly and shut you down.
If you have any more questions feel fee to ask.
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