Well seeing as ifixit seemed to reckon that apple pay about $20 per 32GB of flash for the iphone 5 (for which apple charge $100 e.g. when bumping from the 32 to the 64gb model) and they reckon there's $440-odd of pure profit in the base 16gb model, I reckon with another year of price reductions and economies of scale in supply, Apple could manage to sell ONLY a 128GB model at the base price and still make $370 profit per phone.
Although of course that doesn't consider that it looks like Apple make $611 per 64GB iphone due to the extreme overpricing of a few gigs of extra flash, and of course there's some losses in retail distribution etc that ifixit don't take into consideration.
Maybe not the Apple way, but perhaps time to sacrifice a little bit of the profit for market share? There are rumblings afoot and maybe this is one way to tackle them.
I think they'd influence some of the Market their way and have the dual purpose of not losing the Apple fans that have found they constantly have to administer the space on their device cos they didn't want to pay an extra $100/200 for $10/$30 worth of flash back when they bought it. I also think it would make the decision a lot easier for those that are updating their phone and considering other options.