Your reasoning is sound, but I really doubt they are going to kill it. Here's why:
The iPod Touch is a GREAT introduction to the iOS platform.
This is out-dated rhetoric and it also doesn't hold especially since the cheapest iPod touch (which customers are inherently incentivized not to get, in favor of its higher-end colored and rear-camera-laden siblings) is only $70 cheaper than the cheapest iPad mini. The colored rear-camera-laden iPod touches start at the same price that the iPad mini line starts at. Also, it's 2014, who needs an introduction to the iOS platform?
It's the most affordable iOS device. It requires no contract, no expensive financing. It's great for kids, who then grow up to become iPhone customers.
Again, this rhetoric held true a few years back, but not so much anymore. These days, a vast majority of phones sold are smartphones and a vast majority of parents are giving their kids iPhones (albeit older ones).
The iPod Touch doesn't cost much to make, and even if they don't sell that many, every single customer is a potential future iPhone customer. I know several people who at one point in the past had a dumb-phone and bought an iPod Touch, then some time afterwards, upgraded to the iPhone to combine the devices.
The iPod touch has more or less prevented me from getting an iPhone. I have zero need for an iPhone when I can have an Android phone, AND an iPod touch.
In any event, the iPhone is vastly outselling the iPod touch, so I don't think Apple really needs the iPod touch to serve as an iOS halo product.
I just can't see Apple taking such a stepping-stone product off the market. I'll gladly eat my hat if I'm wrong.
--iPhone user who go introduced to iOS with an iPod Touch
In 2007, it was a stepping stone product. In 2008, through 2010 even, it was a stepping stone product. In 2014, the whole iPod line (touch included) is seeing declining sales figures. The iPod touch succeeded at getting people to buy iPhones and now people buy iPhones instead of iPods.
iPod touch will not be killed, for the sole reason it doesn't cost the customer any money each month to use. This is great for people who are not interested in the phone feature.
I don't think as many of these people exist anymore as you think. Most people have a smartphone, and whether it is an Android phone or an iPhone, it has features comparable or equivalent or better than any iPod touch that has ever been released to date.
I think it will be embraced even more once people realize they can call other apple devices with the FaceTime audio feature. no need for cell coverage. just wifi
This has been the case since 2010, four years have passed and the general public, to my knowledge has never been all that hip to this, at least not where the iPod touch is concerned. With the iPad and Mac maybe, but not the iPod touch.
The cost has not dropped anywhere close to the cost of a Touch. Connectivity cost has gone down but you still have to pay for a full cost iPhone (even though you can buy it in installments).
Subsidized contracts. Totally a thing in some places.