Engineers confirmed during testing that there is a problem with the phone's reception. When a finger or hand touches a spot on the phone's lower left side, the signal can significantly degrade enough to cause the connection to be lost.
The conclusion to not recommend the iPhone 4 comes after CR tested iPhone 4s purchased at three separate retailers in the New York area in a controlled environment.
CR also tested several other AT&T phones the same way, including the iPhone 3G S and the Palm Pre. None of those phones had the signal-loss problems of the iPhone 4.
"Our findings call into question the recent claim by Apple that the iPhone 4's signal-strength issues were largely an optical illusion caused by faulty software that 'mistakenly displays 2 more bars than it should for a given signal strength,'" Consumer Reports wrote.
The tests also indicate that AT&T's network might not be the primary suspect in the iPhone 4's much-reported signal woes.
Apple did not immediately respond to the report.
The iPhone 4 topped Consumer Reports' updated ratings list for smart phones, thanks to its sharp display and "best video camera we've seen on any phone." But the magazine, which tests electronics, appliances and other items, will not mark the iPhone 4 recommended until Apple finds a permanent and free fix for the problem.
To read more about the iPhone 4 test, please visit consumereports.org.