Re: "paint encrypted mobile phone services as something used exclusively by criminals"
You are wrong several times. Let's start with the obvious one:
"The culpability in this case is two-fold: (a) he sold strong encryption to drug dealers for the purpose of evading detection while committing a crime and (b) in the process of committing (a) he violated ITAR and US Export Control regulations."
A is covered in my original comment, short version is "more proof than that needed". For B, no, he did not violate U.S. export controls. He and his company are Canadian. The exports happened from Canada. U.S. export controls only apply to people exporting stuff from the U.S. Same with ITAR. It's a U.S. law and applies only to the U.S. Other countries have similar legislation, at times structured to be compatible, but it's not ITAR. Canada has export control legislation. Calling it ITAR and alleging that U.S. export regulations apply to Canadians makes it clear you do not understand how those laws work.
Now let's consider Canada's legislation. Actually, it's best we don't, because Canada hasn't charged anybody with breaking its export legislation, and they are the ones who would have to. But let's consider it anyway. In the list of controlled items, it originally seems somewhat damning since symmetric cryptography which works is prohibited (limit of 56 bit keys). However, there are long lists of exceptions. One of them looks like this:
"e. Portable or mobile radiotelephones and similar client wireless devices for civil use, that implement only published or commercial cryptographic standards (except for anti piracy functions, which may be non-published) and also meet the provisions of paragraphs a.2. to a.4. of the Cryptography Note (Note 3 in Category 5 - Part 2), that have been customised for a specific civil industry application with features that do not affect the cryptographic functionality of these original non-customised devices;"
Well, the phones themselves are mass-market with hardware modifications unrelated to the cryptography. So as long as they use public algorithms, they count under this exception. Public algorithms include AES and RSA. So now, if Canada wants to charge him, they will have to identify the encryption in use. I'm guessing it's likely to be a public one, in which case they have already allowed it.
Also see this FAQ about cryptography exports. It's useful in determining what is allowed and what is not.
By the way, you'll find that no charges for breaking export controls, whether Canadian or U.S., have been filed. That's because the lawyers understand what is illegal and what isn't. They are hinging their entire case on point A, and point A is quite plausibly true. Still, it needs more proof than you have.