(nothing personal, there's plenty of other people who wrote the same thing I could have picked you just had three good examples)
Obviously since it was the #1 phone with three carriers and in the US in total their decision to not support your exact needs was not business critical. The largest percentage of people in the US looking for a smartphone decided the iPhone 4S features were the best out there for their needs. Which makes Apple's decisions to be the right one.
I'll give screen size as subjective/personal.
NFC is a gimmic still. It's the future but today you can hardly find places to support it and even then you have to pick which NFC technology you want to use.
LTE is hardly on people's radar. Remember how many people called the iPhone 4 the iPhone 4G. Verizon and AT&T are pushing gibberish for the average person. Ask the average geek and besides "fast" what could they really tell about it that isn't marketing text? Even using it as a requirement can arguably be bad. It's an immature technology that sucks battery and empties data limits as the carriers have them today.
Not really. The 4S sold like crazy because of new buyers, largely switchers from either BB or new to smartphones. For those people, everything about the 4S was very very nice. But for people who have had iPhones or touch based smartphones? Not so much.
Essentially, Apple created an incremental upgrade and relied on momentum for sales. At some point, they are going to have to actually move the bar again. A 4" screen would do this. NFC (with an infrastructure to support it) would do this. LTE? Not really, that is only catching up.
And as a geek, I can quite easily tell you what the differences are between HSPA, HSPA+, and LTE. And how NONE of them are true 4g. And how that fact is utterly meaningless in real life.
And finally, as someone who has had an iPhone since day one, I want a larger screen. 3.5 is merely adequate. Sorry. You can say all you want about 3.5 being fine. To me, it is the same as someone spouting why anyone would want or need anything bigger than the 1" screen on a Nokia candybar phone. They could make the same argument that the increase in phone size would make it unpocketable.
FYI, the height and width of the phone are of little importance to the front pocket of an average male's pants. Its the thickness of the phone. Half the time, my current 4s ends up sideways in my jeans pocket, which is actually annoying. And even though there is plenty of space in my pocket, I can't actually put much else in there with the phone because of its thickness. So a 4" screen would essentially do nothing to transportability, assuming thickness remained the same.