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> Alternatively, on devices running Android 8.0 (API level 26) and higher, you can use the CompanionDeviceManager to perform a scan of nearby companion devices on behalf of your app without requiring the location permission. For more on this option, see Companion device pairing.
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The location permission wouldn't work if apps could just look at nearby cell towers, Wi-Fi networks and Bluetooth devices without the permission. Being able to detect nearby Bluetooth devices allows location tracking. These apps COULD use Bluetooth scanning to track users...
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Play Services scanning nearby devices should require it to have location access. If Play Services was just a core part of the OS instead of a privileged app, they could hide this as an implementation detail. Reality though is that contact tracing IS a form of location tracking.
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... has location enabled for the device, they're only going to see a prompt about contact tracing access. The reason they need to enable location access for the device is because Play Services is doing a form of location tracking but then only providing the app with limited info.