Cody Fink has written some interesting thoughts on the possibility of an entry-level iPhone being released alongside with an iPhone 5s this fall. It's a great read, and contains some good logic.
Aside from his arguments, there's an additional reason why Apple would be more interested in releasing a new form-factor than just using the current mid-range model (the iPhone 4s) as an entry-level. A couple of weeks ago Apple dropped the iPod touch 4th gen., and replaced it with a cheaper version of the 4" iPod touch. They removed the camera, but more importantly, replaced the entry level iPod touch with a new model sporting a bigger screen and lightning connection.
By doing this, the iPhone 4(s) is the only model in their current line-up that still has a smaller 3,5" screen. If, and when, they release their iPhone 5s, Apple's lineup will exist out of a 3,5" phone, and every other non-iPad iOS device will sport a bigger 4" display, and lightning. If they just remove the iPhone 4(s) from their line-up entirely, they'll have a much cleaner lineup:
- 4" iPod touch sans camera
- 4" iPod touch
- 4" iPhone plastic with an iPhone 4s' guts
- 4" iPhone 5s
And maybe, but not necessarily, the iPhone 5 as a mid level option. Although this can get quite confusing, because the only real difference between the iPod touch and a plastic iPhone is the cellular option. It's a pity they can't mirror the iPad moniker, and just call it iPod touch Wifi and iPod touch Wifi+ Cellular.
Apparently missed this sentence in the original article:
The first is the move to the 4-inch Retina display, which started with the iPhone 5.