Let me explain some marketing to ya....
Pay CLOSE attention!!
Ok, here in America, $450 of a phone's retail price get subsidized.. thus, a $650 iPhone 5 is $200, a $550 iPhone 4S is $100, etc.
So... enter Android- with phones that retail at $450, they can be offered by carriers for FREE!!
This, whether Apple makes a better phone or not, can be quite enticing to the consumer! If they want to pay $0, they have a bunch of new Android phones to choose from, but only one Apple phone (the three year old, iPhone 4).
NOW.... (stay with me- we're getting to the crux!), if what they're saying is true... & Apple has made a phone that they can retail for $450; for the 1st time EVER Apple will have a brand new phone... for $0!
Let me know if you DON'T see how that would make marketing sense, please.
Moving on.... this creates a clear dichotomy. You may be one of the people that wants a top-tier classy phone & doesn't mind paying $200 and buy a BRAND NEW iPhone 5S... or you can be one of the people that just wants a free phone that seems flashy and still get a BRAND NEW iPhone 5C. The two types of people I'm describing are quite different. I don't see a lot of cannibalization occurring.
Also, (and this is my final point) if I seem to recall correctly.... Apple, once they reach parity, tends to make the same amount of profit off each phone... as the ones they sell for cheaper, cost less to make... thus they don't care which model you get... just as long as you buy Apple, they'll make the same either way.