MODIFY_PHONE_STATE permission is granted to system apps only.
For your information, there are 2 types of Android apps: system & user
User apps are just all your normal app installations through the Google Play Store, Amazon Appstore or sideloading. These go into the /data partition of your Android phone, which is the part of the internal memory made available for user data and apps.
System apps are basically the apps that come pre-installed with your ROM. In a standard Android user environment, the user doesn’t have write access to the /system partition and thus, installing or uninstalling system apps directly isn’t possible.
In order to install an app as a system app on your Android device, your device must either be rooted or have a custom recovery installed (or both).
That being said, that error is actually wrong because you have a valid code and compilation should work. It would be better if it gave a warning instead. In Eclipse you can easily fix it. Just go to:
Window -> Preferences -> Android -> Lint Error Checking.
Find ProtectedPermission from the list and set the severity to something other than error(info for example). This way your project will still compile.
to ignore