While other smartphones' screens have steadily increased in size over the last year, the iPhone's has stayed a constant 3.5 inches. The challenge with increasing the iPhone's screen size is how to keep the resolution roughly the same (so that developers don't have to re-tool their apps) and to keep the pixel density the same so as to retain the Retina branding.
A caller on The Verge's podcast suggested a clever solution: Instead of increasing the length and breadth of the iPhone's screen, keep the breadth the same and increase the length only:
Colin's idea was to keep the shorter side of the iPhones screen the same, i.e. 640 pixels at 1.94 inches. With that in mind how much would the longer side need to increase so the that diagonal measurement was 4 inches. The answer, derived using simple algebraic rearrangement of Pythagorus's theorem, 1152 pixels and 3.49 inches. That leaves the the diagonal length measuring a little over 3.99 inches, I'm sure Apple PR could round this 4.
The Verge forum user modilwar then took this idea and illustrated just how a iPhone 5 with a 4" screen might work, while not affecting developers significantly and still keeping a Retina display. Check it out over at The Verge's Apple Core forums.