[fletcher]

Your prediction that Apple will not switch to a smaller screen size is illuminating...

The problem as I see it is that for marketing pressure they could switch to 4 inches displays, and the issue showed by the original poster is a bad one for smart users interacting with their device with just one hand (this is at least how I use it and how I see all my friends interacting with it).

Actually the iPhone software keyboard appears to be designed for a good one hand interaction since it works incredibly well even when you think you are putting your thumb in a too wide and imprecise area but actually you end pressing exactly the intended letter.

If there was a reason for the original display to be 3.5" is likely exactly that: the largest screen that is possible to get while preserving one hand interaction and reasonable size for holding it in your pocket.