I live in the UK and a lot of people here are ditching the iphone as the screen is way to small, im sure its only a few but the screen issue is becoming a fact of life.
I agree, 4" it's too small for a smart phone these days. Not smart enough.
I tried Galaxy Note and that is a bit too big at 5.5" though still very nice.
But 4.8" Galaxy S3 is a sweet spot for me size wise: the soft keyboard is large enough, you can read ebooks easily, browse sites easier and it is still very pocketable though I use belt holster.
If Apple wants to compete, they need to offer 2 or even 3 sizes: 4", 4.8", 5.5" phablet. And they need to do it fast. Consumer likes choice and everyone has different needs/preferences. I guess the problem is that the "pixel-perfect" iOS does not handle various sizes very well. iOS needs to be rewritten to handle fluid layouts and various screen sizes. Otherwise, you have that "fragmentation". Apple is stuck with it. Apple rushed to the market with original iPhone with OS which is not future-proof. reset iOS update is only partially addresses the issue with "auto-layouts".
On contrary, Android OS works with various screen ratios/sizes, even with tablets, digital cameras and refrigerator displays. Smart enough.