They know where you are
If you are using the mobile network, the carrier knows where you are.
Apple has sent Congress an explanation of its location-based information-gathering and privacy policies. The 13-page letter letter from Apple's general counsel Bruce Sewell sent on July 12, in direct response to a "Dear Mr. Jobs" letter penned late last month by US Representatives Edward J. Markey and Joe Barton, co-chairs of …
Even in the USA where the carriers must be able to provide location of any phone down to 10s of meters to law enforcement they cannot do that in real time for all phones. The phone must be paged, reply with info which cell towers it sees and at what strength and the network must compute the location from that.
This mechanism works very well in 911/112 scenario where you are trying to pinpoint one phone. Doing it for all phones in the network and most importantly doing it in-context in relation to the way the customer is using the phone is not something which the carriers are capable of.
"For customers who do not toggle location-based service capabilities to 'Off,' Apple collects information about the devices's location (latitude/longitude coordinates) when an ad request is made."
So you have to turn it completely off or Apple collects your info .
If by "turn it completely off" you mean "opt out of location-based services for iAds", then you are right. If you mean "turn off location-based services in general for the entire device", then you are wrong.
Apple provides an opt-out mechanism specifically for iAds. No, you may not opt-out from location-tracking for specific ads, just for ads in general.
By the way, when you opt-out of location-based services for iAds, you still get the ads; just not targeted ones.
-dZ.
That's actually there for your benefit. Photos and videos you take include location information, so by extension, if an app accesses your photos and videos it can access your location information. If it didn't check for permission that would be a security hole (though maybe you could argue the check should be refined, so if you don't give an app permission to use Location Services you can still access photos that aren't geotagged, rather than blocking access to all your photos or videos).