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Location services - such as https://www.lociloci.com - allow you to track any phone as long as the person replies to a text to allow the tracking to be performed. How do these services receive the location information from the phone networks and are networks legally allowed to share this information with other companies?

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As for the services receiving the location, (I would assume it works this way, since they assure no GPS is used) it is highly possible that these services acting as a receiver (instead of a normal phone), receive the information about which phone mast the message came from, which always reveals the area of which the "victim" is around, since to communicate via SMS/Calls, the phone connects to the nearest phone mast, revealing the area of the sender.

Phone mast

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First I would like to explain you how communication takes place. Mobile network architecture

Now as in above diagram, there are

  1. BTS(at extreme left ride grey colored rectangle) Base Station Receivers they just send and receive data using radio waves. Our mobile is connected to these BTS.
  2. BTS are connected to BSC (Base switching Center) here data is received and encrypted/decrepted and send it to MSC(Mobile Switching Center).
  3. Now on receiving/sending any data MSC just add information to its master database called VLR (Visitors Locator Registrary). and send it forward as per IP address.

So Communication (In short)

Mobile Device <-> BSC(Encryption/Decryption) <-> MSC (Data Entry) <-> Other Network.

So as per your question what I think is location services might be showing location of base station from where data is originated or they might be using GPS services

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