Trying to guess why decisions are made, while an interesting exercise, is somewhat pointless. The author has decided, based on his own opinion, that the iPhone has a 3.5" screen because that is a size comfortable for many users. You can come up with equally possible reasons such as:
Apple wants to maintain a consistent environment for users, and a larger screen may cause problems for some apps.
Apple was unable to secure a sufficient number of larger screens and chose to keep the current size due to availability.
Alternative to the last possibility, Apple may have committed to buying a larger number of screens than they needed and do not want to take the financial hit of writing them off.
A larger device may have required more testing time, pushing the release date past the holiday season.
*etc.
Apple isn't likely to confirm or deny reasons they chose not to increase the screen size, so no matter how sure you are of your reasoning, it's still speculation.
Apple wants to maintain a consistent environment for users, and a larger screen may cause problems for some apps. Apple was unable to secure a sufficient number of larger screens and chose to keep the current size due to availability. Alternative to the last possibility, Apple may have committed to buying a larger number of screens than they needed and do not want to take the financial hit of writing them off. A larger device may have required more testing time, pushing the release date past the holiday season. *etc.
Apple isn't likely to confirm or deny reasons they chose not to increase the screen size, so no matter how sure you are of your reasoning, it's still speculation.