Either way, the upshot is the same: all iPhones running iOS 4.0 or higher periodically record the time and general location of the device using cell towers as a point of reference. As far as anyone can tell, this info is only stored on the phone (and in the phone’s backup on your Mac or PC) and is never transmitted to anyone, including Apple.
At first glance, this is nothing new.
Wireless carriers track and record users location as a matter of course. Periodically your phone looks for new towers; when it finds one, it announces its presence so the cellular network knows where to route incoming calls or data requests. This happens constantly when the phone is on--if it didn’t, your cell phone simply wouldn’t work. However, there’s a good reason that people are upset about the iPhone automatically tracking your movements. Because Apple is storing the tracking info in unencrypted files on your phone and computer, they’re very easily accessed. While your angry ex-wife (or her private investigator) would need a court order to subpoena your phone records from AT&T, she just needs five minutes with your MacBook and a copy of iPhone Tracker.
The bad news is that you can’t turn off tracking or delete the stored data from your phone--at least not today. Until Apple releases an iOS update that lets you prevent the iPhone from recording your location information, the only thing you can do to protect yourself is secure your phone (and its backup) better using the tools that are already available to you.
The first thing you need to do is encrypt the backups of your iOS devices on the computer you sync them with. Open iTunes, connect your iPhone or iPad to the computer, and click on the device when it pops up. Go to the Summary tab and make sure “Encrypt iPad Backup” is checked. Obviously, your encrypted backup will only be as secure as the password you choose, so follow a good password scheme. If you want to go a step further or are worried that Apple may not be encrypting your backup with strong enough encryption, you can use a third-party utility like TrueCrypt to encrypt the backup folder (it’s in /Users/
The next thing you need to do is secure your phone. The good news is wiping your phone removes the offending data. If you're willing to wipe your phone and reconfigure it as if it were new, you can remove the location data that's already been collected from your phone. However, there are less drastic approaches. First, you should enable a secure passcode on your phone. This will prevent anyone who doesn't know the passcode from syncing the phone with a strange PC and backing up the location database. To turn a passcode on, open the Settings app, then go to General > Passcode Lock and tap Turn Passcode On. If you're especially paranoid, you can also turn on the "Erase Data" option in the same menu, which will erase everything on your phone after 10 failed login attempts. You may also want to enable Find My iPhone, which will let you wipe your phone remotely. We tested both phone wiping options, and both remove the offending information from your phone.
Once you’ve secured your phone and your computer, the only other thing to do is wait for Apple to patch iOS and either disable this functionality or give users the option to choose whether they want it on or not. While it probably isn’t illegal for Apple to store this information on the phone, they shouldn’t do it without the user’s consent, and they sure as hell shouldn’t do it in an unencrypted file that's easy for anyone with access to your computer to exploit.