The latest rumor for the next-generation iPhone is that Apple could use a 4.6-inch display. This is a huge leap in screen size considering the current iPhone, and every iteration since the first one, has featured a 3.5-inch screen. After using the GALAXY S II, the iPhones screen is just... way too small. A 4.6-inch display would look magnificent on the new iPhone.
It's being reported that Apple would keep its shorter, but wider ratio, and would use LCD instead of AMOLED. There's always this persistant rumor that the late Steve Jobs objected to a larger screen, as it would fragment design of the apps, look and feel of the iPhone. But seriously, the iPhones screen is just too small to combat against bigger screens.
I'm guessing the following: we'll see a new, bigger iPhone. It'll either be called 'the new iPhone' (like the new iPad is called just 'iPad'), or the iPhone 5. The new iPhone will most likely arrive around the time, or be exclusive with iOS 6. iOS 6 is going to be required to combat Android 5.0 'Jelly Bean'. On top of that, the GALAXY S III is going to be the new iPhones biggest competition.