In this context I think you can distinguish between three different kinds of location-related data:
* cell tower data
* phone GPS data
* Bluetooth data about proximity to specific other people
For most purposes these are increasing in precision and sensitivity. But also, governments can demand that carriers turn over the first kind, but the second two are generally under some kind of user control according to mobile OS designs. There is no single place that automatically gets this data about every smartphone user.
Some of the discussions about privacy for the kind of technology that Apple and Google are working on here are based on observations like
* there actually is no existing way that health authorities could get detailed Bluetooth proximity information about all smartphone users
* this information is potentially more useful for epidemiological purposes, and also more privacy-sensitive, than just GPS sensor data, because it may more reliably map individual people's interactions with one another (for example, potentially confirming that people were likely in the same room rather than just in the same building)
* there are cryptographic concepts that could potentially make this data useful for contact tracing, if users cooperate to a certain extent, in a way that would still make it difficult to obtain or use the data for a different purpose
Another way of putting it is that many people looking at this question think that there is an incremental privacy harm from disclosing Bluetooth proximity data (compared to data that is already available), and an incremental benefit to epidemiology from finding a way to process this data for contact tracing purposes (compared to data that is already available).