Apple says it has been using a “totally wrong” formula to calculate the bars of signal strength on the iPhone since 2007, when it first launched the device.

The device exaggerates the signal strength of AT&T’s network by displaying two more bars than it should, Apple said. For example, the iPhone may mistakenly display four bars when it should be displaying as few as two bars.

The announcement came after Apple investigated complaints that the iPhone 4 lost all wireless connectivity when the bottom left portion of the device’s external steel antenna contacted skin.

“Users observing a drop of several bars when they grip their iPhone in a certain way are most likely in an area with very weak signal strength, but they don’t know it because we are erroneously displaying four or five bars,” Apple said in a statement. “Their big drop in bars is because their high bars were never real in the first place.”

Apple plans to bring the iPhone’s signal strength bars in line with AT&T’s other devices by adopting the carrier’s recommended formula in a software update issued within a few weeks.

The update, which also make the iPhone’s first three signal bars appear taller, affects the iPhone 4, iPhone 3GS and iPhone 3G because Apple has been using the wrong formula since the device was first launched.

Apple said the software update would only make the bars on the phone more accurate but did not say the update would improve wireless reception on the device.

Addressing complaints about the iPhone 4, Apple said gripping almost any handset in certain ways will reduce its reception by one or more bars. It maintains that the iPhone 4’s wireless performance is the “best we have ever shipped.”