Since Samsung is axing the Navigational Buttons (Back, Home, Menu) on the bottom of the phone, it can decrease the size between it and the edge.

And since the NavButtons will be on-screen, then the screen can afford to be larger. At 4.5inches it is the same size as the 4.2inch SII, just differing in the area where the Navi-Buttons preside.

Once you tame yourself to be adequate with the on-screen keys, you'd appreciate the extra size for things such as watching video.