The advantage of software buttons is that it allows you to make the bezel smaller and make the screen larger, all without having the make the phone any bigger. And when watching videos, the buttons go away and you get even more screen space for media consumption.
True, and that's probably why Android is moving away from them.
The current iPhone has a huge top and bottom bezel though. Maybe the next iPhone with a larger screen will change the design a bit and reduce the size of the bezel top and bottom.
I don't think the side bezel's can get much smaller. Looking at the iPhone, SGS3, One X, SGN, they all looke close enough in width. There needs to be room for the screen to be secured, the casing to fit, etc, etc.
Now the bottom bezel is, I believe, fixed about as small as it can be while the iPhone still uses a physical home button. There's not a LOT of space you could take away from there without bringing the concern that a press of the physical button might cause contact with the bottom of the touch screen. There may be SOME space that could be trimmed there, but nothing significant.
Here's the issue with the top bezel. That room is needed for Apple to accomplish the design they want. If you haven't noticed, Android phones with really small top bezels have extruded tops. Look at all the new phones. The One X has a huge bump at the top for the camera. The SGN has not quite as large a bump in the backplate, but it's still there. The SGS3 has a large extrusion that pulls the camera out. The Droid RAZR just puts a huge hump there.
Apple chooses (so far, at least) to keep the phone uniform. So although that large bezel isn't necessary to house the front camera and the speaker, it is necessary to give the much larger rear camera room to sit flush against the backplate of the phone.
Now, I suppose Apple could decide to go a different direction in the future. But, if they choose to keep the phone uniform in shape, that bezel is staying. On top, of that, it's quite possibly the most recognizable phone front on the planet. You can draw an outline drawing of a iPhone and people are almost going to instantly recognize it. If you were to draw an outline drawing of <insert hot android of the month here>, it's not as instantly recognizable by the general population.