Ok. I have to give some credit were credit is due.. I've installed a lot of in-building signal amplifiers for AT&T and Verizon, an I can tell you this from my personal experience: The iPhone's bars have always lied. That said, the phone does do very well for what it calls 1 bar especially on UMTS. Most phones waiver more at that sort of signal level (going on dBm). However I am fairly certain the "Bar" concept in the case of the iPhone was by design, and still is even on the iPhone 4. This represents AT&T as having higher signal strength than it actually does when using the *average* bar gauge, which has been in my experience: (On phones with 5 bars)
5 bars: -0 - -70
4 bars: -71 - -78
3 bars: - 79 - -86
2 bars: -87 - -95
1 bar: -96 - -110 (Normal Cut off Point)
It should be said this is NOT the only phone to do this... The Blackberry Bold 9x00 using AT&T's build of Firmware will always show -70 and 5 bars when on 3g until the signal goes to -85 then the bars start to drop. Ironically, i determined this using the field test mode of a Motorola and an iPhone and theorizing the BB wouldnt be *TOO* far off the other 2.
Fact is, on 3G which is also known as WCDMA, the signal STRENGTH isnt as important as the signal quality which is a variety of combined factors. When Verizon initially went to digital using CDMA, it was considered to not even put bars on the phones, as they are not completely relevant to how well the phone will make a call. Back to the iPhone 4's signal issue:
Older phones on Verizon used external antenna's. These performed admirably, and versus todays internal / bottom oriented antennas they owned. This is because the signal actually RADIATED OUT AND AWAY FROM THE $%&^ING PHONE!!!!
Apple took a good idea and screwed it up. It is important to note: If you leave a 3G area, the issue of "Bars" or signal strength dropping is greatly diminished, as typically these are in rural outlying areas and may even be on 850 only (In the hills, any way). This is because when using non 3g it doesnt factor in the quality of the signal, only the strength. Me and a buddy did a few call tests and were able to only get the signal down by 1 bar from 5 to 4 (for what thats worth, any way) and the phone did worse than it does as far as call quality than when on 3g on 1 to 2 bars.
Nice try apple, but c'mon, admit it: You screwed up. its OKAY! Every company has a screw up, even magical fairy companies.......