They used to do that back when the iPhone first came out. I don’t think anybody liked that better, and having people hang around on older iOS versions was (and still is) bad for security.
iPhones never had paid iOS upgrades. iPod touch did, but that's because Apple was worried free updates would violate an accounting rule. Specifically, the iPhone was considered subscription revenue while the iPod touch was considered purchase revenue. And after an accounting scandal[0] GAAP had been changed so that you couldn't say you sold, say, a bunch of stuff that hadn't actually been finished yet, and then finish it later with, say, a software update.
This is, of course, how basically every tech company works nowadays[1], because Apple lobbied to have that accounting rule removed.
None of this has anything to do with "App Store pays for iOS". That's an excuse Apple came up with after Epic Games sued them, there's no point in time I can point to where iOS is just the bundled OS vs. "paid for with app sales". The reality is, everything pays for everything, because Apple only sells fully bundled experiences. Their opposition to sideloading or third-party iOS app stores is only somewhat related to security[2], and more related to the fact that they don't want anyone dictating to them how the customer experience is, even if those changes improve the experience.
Well, that, and the fact that they make bank off App Store apps.
