Why is everyone talking about a new lower cost iPhone???? They already have that. 4,4s. Free,$99. The 5 will move into the 4s spot this year and so on.
If you want a huge screen. Buy an iPad.
The problem is that this only applies to those in the US and who are on a contract carrier that support the iPhone. Don't want to live in the US? Want to use a prepaid carrier/different carrier's SIM card? Why would you want to pay $550 for an iPhone 4S when there are Android phones that cost much less (that usually have better advertising features)? You could buy the iPhone 4S from AT&T for $99 on contract, or buy it for $550 dollars, or the person being conservative with their money could go for a Nexus 4 for $300, HTC One V for $300, etc.
As a phone for contract carriers, it doesn't make much sense since you do have the pattern of the newest costing $199, the last gen $99, and the previous free, but for people outside the US where this doesn't happen, or people taking the prepaid route, it can make the iPhone more accessible.