You mean the iPhone size selection is definitely non-existent
This.
Some people want a phone that they can occasionally use for web, movies, ebooks and email on the move. Maybe they also carry an iPad or an Air. Other people want a web/email/movie/ebook reader that they can occasionally use as a phone. Maybe they have a larger device, but don't want the hassle and expense of two cellular contracts or tethering. Some people habitually wear clothes with decent pockets, others wear spray-on jeans.
The problem with the iPhone is not that it is the "wrong" size, it is that one size doesn't fit all. The non-iPhone world offers phones of all sizes. Samsung alone offer 3", 4.8" and 5.5" in their "Galaxy" range, and there are many more options if you look beyond Samsung. Phones with large screens are selling like hotcakes. Apple could get some of that action if it produced the "iPhone mini" and "iPhone wide" alongside the current model. They've had a great opportunity - with the introduction of retina displays and the iPad mini - to move developers over to a resolution-independent model so Apps support different screen sizes and shapes.
Apple are, instead, running ads about the iPhone 5 screen size being "common sense" (...which it may be for scrolling contacts lists or using mobile versions of websites, but it's certainly not common sense for accessing full-sized websites, maps/GPS or reading ebooks).
We're not talking about the product-line bloat that some other manufacturers - lots of competing models with exciting names like XTC700B/EC - just a choice of 2 or 3 form factors, just like MacBooks, iMacs, iPods, iPad...