I had this same problem. The sensor wouldn't activate and wouldn't turn the screen off so I would end up putting people on mute or hold. I tried to exchange the phone through AT&T but the phone was back ordered so I contacted Apple Care and they had me do a reset and that didn't work. Apple then had me do a full software restore and that didn't work. They finally agreed that it was a hardware issue and exchanged my iphone within 48 hours. Of course they had to put a hold on my credit card for the full price of the phone, but it was better than what AT&T wanted. AT&T actually wanted to charge me for the full price ($700) and wouldn't credit it back until they got the phone back and within 2 or 3 business cycles (2 or 3 months)! The new phone that Apple sent works great expect for the signal issues when holding the phone. But I have a bumper case on the phone so it's not that big of a deal.