Consumer Reports said it couldn't recommend Apple's iPhone 4 without a fix.Consumer Reports kicked the tires on Apple's (AAPL) iPhone 4 cases Wednesday, in an effort to ascertain their effectiveness in fixing the reception woes that have plagued Apple's latest souped-up smartphone. And the verdict? It works.

But despite its findings, Consumer Reports says that unless Apple is willing to make its fix "free," as in "throw in the cases" (a case keeps the user from inadvertently touching the "antenna gap" on the phone's lower left side and causing serious signal degradation, even dropped calls), the consumer products ratings provider still stands by its decision earlier this week to forgo recommending Apple's iPhone 4.

Apple Should Pay to Fix Its Own Design Flaws

"Consumers shouldn't have to pay to fix a design flaw," says Mike Gikas, a Consumer Reports senior electronics editor, who noted the revered publication may reconsider bestowing a buy recommendation on Apple's iPhone 4 if it offered the iPhone 4 cases for free. Aside from the poor reception and dropped calls, the iPhone 4 tested high with Consumer Reports because of improved battery life, new features and "the sharpest display and best video camera we've seen on any phone."

As part of its testing, Consumer Reports tried an iPhone 4 "Bumper" case purchased from Apple ($29). Although a number of other manufacturers offer cheaper iPhone 4 cases, Consumer Reports noted that it hasn't tested them.

Here's what Paul Reynolds of Consumer Reports had to say about its iPhone 4 Bumper test:

Apple's Bumper, a frame-like cover sold by the company to add a "dash of style" to the iPhone 4, has been flagged by some bloggers and consumers as a possible fix for the phone's signal-loss problem. We put the accessory to the test in our labs and confirmed that it does remedy the issue.

We slipped a Bumper onto an iPhone 4 and repeated our earlier tests of the phone's signal reception when held in a certain manner. Mimicking the contact described in consumer complaints about the phone, our tests measured any change in signal strength when a finger was placed over a small gap in the casing on the bottom left edge of the phone.

In the earlier tests without a Bumper, signal strength on the iPhone 4 dropped significantly each time a finger was placed over the gap, a reduction that might cause a call to be dropped. The signal problem is the reason that we did not cite the iPhone 4 as a "recommended" model, even though its score in our other tests placed it atop our latest Ratings of smart phones, released this week and available to subscribers.

With the Bumper fitted, we repeated the test procedure, placing a finger on the Bumper at the point at which it covers the gap below. The result was a negligible drop in signal strength -- so slight that it would not have any effect, in our judgment.

A Recall in the Works?

For Apple investors, the Consumer Reports review added more fuel to speculation that the iPhone 4, despite its bevvy of cool features like its pixel-packed display and high-end camera, could be subject to a recall. The closely followed Consumer Reports announced its Apple iPhone 4 assessment early Monday morning, causing Apple's shares to fall 3% to $251.80 over a two-day period, while the broader markets surged ahead. Apple shares recovered some lost ground Wednesday, closing up 0.37% to $252.73.

Wall Street analyst Richard Gardner of Citigroup (C) chimed in on the recall ruminations Tuesday, offering a bit of opportunist advice: "Buy on weakness." In his research note, Gardner says: "We consider the probability of a recall to be very low, given our view that the issue in question is not serious enough to warrant a recall."

But Gardner notes that Apple could offer a free case with every iPhone 4, and that would prove a cost-effective and fair solution. He notes that an Apple Bumper costs $29 and carries a gross margin of 50% to 80%, so a freebie would only reduce the iPhone's lofty gross margins by roughly 1% to 2% from its current levels in the high 50% range.

Jay Goldberg, a Deutsche Bank mobile analyst, also says an iPhone 4 recall is unlikely, given that its problems aren't a safety issue. And when it comes to the Consumer Reports iPhone 4 review, Apple should be more concerned with the constant chatter about poor reception and dropped calls than the actual report.

"The Consumer Reports test has some effect, but it's not the first resource people turn to," Goldberg said Tuesday. "Most people buy based on brand and what their friends say."

Don't Criticize Apple, Or Else

Apple, nonetheless, probably trying to minimize the influence of the Consumer Reports iPhone 4 review, reportedly yanked down message threads Monday on its community message boards that referred to the review. One message thread, however, managed to survive through Wednesday.

"Tom222555" kicked it off with his post, "Consumer reports has un-recommended the iPhone 4," on July 12, at 6:05 p.m.: "Is this enough to make it not worth buying, any advice from people who already have it?"

Then "xupeiran" responds two minutes later: "I'm sure this thread will be deleted soon lol..."

And "JPBOSS" chimes in at the same time: "This thread being deleted in 5,4,3,2..."

And what does Consumer Reports think of reports that Apple is going into its community forum boards and deleting messages that address its refusal to recommend the iPhone 4?

"If it's true, that's disappointing," Gikas says. "I guess it's their page and they can do what they want to do, but the great thing about the Internet is, there are other ways to get that information."

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