This describes how mobile communication work, since mobiles appeared in the 1990s. The phone network has to have (at least) block level accuracy on every phone, otherwise it doesn't work.

Of course it can do much better than that (building level is definitely trivial). The previous comments thread on Hacker News has more details, including some explanations on correlating movements of people to trace every individual one came across and the relations they have. Scary stuff.

GPS is more accurate of course (10 meters or less), but it requires the phone to run a spyware application and drains the battery, unlike simply having a phone that's on.