1. Why is Apple tracking the location of my iPhone?

Apple is not tracking the location of your iPhone. Apple has never done so and has no plans to ever do so.

3. Why is my iPhone logging my location?

The iPhone is not logging your location. Rather, it’s maintaining a database of Wi-Fi hotspots and cell towers around your current location, some of which may be located more than one hundred miles away from your iPhone, to help your iPhone rapidly and accurately calculate its location when requested. Calculating a phone’s location using just GPS satellite data can take up to several minutes. iPhone can reduce this time to just a few seconds by using Wi-Fi hotspot and cell tower data to quickly find GPS satellites, and even triangulate its location using just Wi-Fi hotspot and cell tower data when GPS is not available (such as indoors or in basements). These calculations are performed live on the iPhone using a crowd-sourced database of Wi-Fi hotspot and cell tower data that is generated by tens of millions of iPhones sending the geo-tagged locations of nearby Wi-Fi hotspots and cell towers in an anonymous and encrypted form to Apple.

4. Is this crowd-sourced database stored on the iPhone?

The entire crowd-sourced database is too big to store on an iPhone, so we download an appropriate subset (cache) onto each iPhone. This cache is protected but not encrypted, and is backed up in iTunes whenever you back up your iPhone. The backup is encrypted or not, depending on the user settings in iTunes. The location data that researchers are seeing on the iPhone is not the past or present location of the iPhone, but rather the locations of Wi-Fi hotspots and cell towers surrounding the iPhone’s location, which can be more than one hundred miles away from the iPhone. We plan to cease backing up this cache in a software update coming soon (see Software Update section below).

Their claim pretty explicitly states, that they aren't storing location data based on your actual position. The facts would appear to indicate otherwise (these are based on the copy of consolidated.db that was on my phone:

• The tables "CellLocationHarvest" & "CellLocationLocal" store both "Speed" and "Course" entry (several others have these fields, but did not have any or valid data in them). Unless cell towers have a habit of moving about, this would appear to be logging *your speed & direction* and not just "tower data". Granted, the "CellLocation" table containing the most significant amount of data, did not have valid data in the speed fields.
• The table names imply different uses for e.g. we'd expect CdmaCellLocation, CellLocation & WifiLocation tables to store the info they speak about above. But the "LocationHarvest" table not only stores valid speed & course fields, it also assigns a unique "Trip ID" e.g D47CA532-84C9-40CD-8BE6-B3895837DA3C. This looks like a unique identifier based on *your* movements, not those of the cell towers.
• Even if this was downloading offline caches of cell towers & APs for assisted GPS, given this includes details as granular as my neighbours Wifi AP, this is still more than enough to track your actual location. We've seen large data sets with "unique anonymous" identifiers deanonymised many times.
• The data is good enough for forensic investigators to use, here's a screenshot from a book on iOS forensics: "consolidated.db [snip] is potentially one of the most forensically rich files an analyst can use." It strikes me that if it's good enough to use in the courts, then the implications may be a bit wider than Apple claims.
• And finally, further down the QA, Apple contradicts their statement of "The iPhone is not logging your location" by explaining that it is, and this will be used for traffic information. This explains the "LocationHarvest" table mentioned above.

8. What other location data is Apple collecting from the iPhone besides crowd-sourced Wi-Fi hotspot and cell tower data?

Apple is now collecting anonymous traffic data to build a crowd-sourced traffic database with the goal of providing iPhone users an improved traffic service in the next couple of years.

On the up side, they acknowledge at least one bug:

7. When I turn off Location Services, why does my iPhone sometimes continue updating its Wi-Fi and cell tower data from Apple’s crowd-sourced database?

It shouldn’t. This is a bug, which we plan to fix shortly (see Software Update section below).

I haven't seen what is actually transmitted to Apple, so can't comment on how much is uploaded or downloaded. However, I can attest to have seen the iPhone populate the file with tower & AP information when first populating it with data (123 cell towers, and 401 wifi APs). So that part is at least true.

In conclusion, I certainly don't think this is a serious threat, but this file does store rich location data that can be used by anyone with access to it to disclose a significant history of your movements. Apple has attempted to play that down, but for people to who the privacy of that data may be of critical importance (think protesters in Lybia or Egypt), they should take steps to protect themselves. Finally, it is also my belief, that based on the data in the file, if Apple has access to the same data, then there is enough information for them to uniquely identify both you, and your location history. They claim they aren't, but it just takes one breach for all of this data to end up somewhere we need to make different assumptions about, and I'd prefer that the location data Apple (and others, like my mobile service provider) collected without my consent, be deleted.