Microsoft has admitted that Windows Phone 7 smartphones have been gathering location data without user permission, but claims that this is down to bugs that will be fixed with the Mango 7.5 update.
The company previously described the accusations as "baseless", but has backtracked after carrying out an investigation into Windows Phone location services.
Microsoft found that devices send information about nearby Wi-Fi access points and cell towers when using the camera application. Handsets configured to use US English have also been sending information when voice commands are used to search.
Accessing the Me tile on Windows Phone 7 smartphones results in a similar collection of information, but Microsoft claimed that the location service does not identify individuals or devices, even though information is received and stored.
Microsoft said in a statement that the company is committed to user privacy, and that the Mango update corrects the "unintentional" behaviour.
"As our Privacy Statement explains, the Windows Phone location service uses and stores only limited information about nearby Wi-Fi access points and cell towers, which we use to help provide location services more efficiently and effectively," the firm said.
"Most importantly, it does not use or store any information that identifies users or uniquely identifies a device."
The revelation that handsets have been collecting data is another embarrassing episode for the Windows Phone platform, which is struggling to gain traction in a market dominated by Apple and Google.
Microsoft could face a further backlash, as some customers may have to wait until the end of October before receiving the Mango upgrade.
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