Most people (at least in the U.S.) buy the phone with a plan and pay a far lower price anyway. In most markets, you can get the iPhone5 for $200 and the iPhone 4s for either free or $99. If this new "low-cost" iPhone is the same price, then what's the point? The only benefit I see is that they can discontinue the iPhone 4s.
The point is that they can standardize on both 4" and lightning. The other point is that you will then have a clear demarcation in the iPhone product line with a premium and standard model. Selling older models was only a temporary solution and was never meant to be permanent. Assuming they use the Qualcomm front end that can operate on every single band and carrier in the world that also means far fewer SKU's. Instead of needing to make 4 version of the iPhone 4S and another 4 versions of the iPhone 5, they can simply make one iPhone lite model and sell it to every single country in he world which will be a huge cost savings.