I can't tell you how many people have told me they've opted for an Android phone like the Galaxy S III primarily because they wanted a bigger screen. I personally love how light and thin the iPhone 5 is, but shoppers have voted with their wallets, and they want displays larger than 4 inches. It's about choice.
As HTC proved with its Droid DNA phone, you can make a 5-inch device with a full 1080p screen, while retaining a design users can operate comfortably with one hand. Meanwhile, Samsung has already moved 5 million 5.5-inch Galaxy Note II phablets. Apple needs to enter this marketplace without creating fragmentation within its own ecosystem. The company must settle on an HD resolution that's easy for developers to scale and that can work just as well on a smaller handset as a larger one.