The two-year old "PSP Phone" rumor has been resurrected yet again, this time because of a weekend article in respected Japanese business journal Nikkei Shimbun. The article says Sony now has plans to set up a PSP Phone development team in July which will be comprised of Sony Ericsson and SCE workers.

Rumors of a PlayStation Portable-branded Sony Ericsson device began when a 2007 patent application for a gaming phone was filed by the joint venture. The device in the patent is designed with a 90-degree pivoting screen not unlike the LG VX9400, and d-pad style buttons rather than the traditional numeric keypad. Earlier this year, a Christmas 2009 launch date for the device was rumored as well.

Sony put a scotch on these rumors first by explaining that it does not attach the PlayStation brand to anything that could potentially compromise its value; and second by announcing the PSP Go!, an updated PSP with more phone-like proportions. The device bears a striking resemblance to the Mylo, Sony's less-than-successful Wi-Fi communications and entertainment device.

A gaming phone would address the Apple iPhone's twofold encroachment into Sony's market share. As a gaming device, the iPhone has been enjoying increased attention from game studios, while the PSP reportedly has been having difficulties keeping developers interested. As a smartphone, the iPhone and its kindred have crept up in market share as Sony Ericsson's devices, which mostly focus on a single feature such as the camera, have retreated in popularity.

Potentially setting the stage for a PSP-branded phone, Sony Ericsson recently unveiled Entertainment Unlimited, a strategy which bridges Sony Pictures, Sony Music, and Sony Computer Entertainment with the mobile phone division. Under this strategy, Sony Ericsson premiered Saito and Aino; two phones which focus more heavily on gaming and entertainment. Saito is the first Sony Ericsson device to include more sophisticated "nHD" gaming, and Aino can connect to the PS3 via Remote Play and access the game console's content.

If the PSP Go is Sony's attempt to compete with the iPod Touch, as some analysts believe, modifying the device to compete with the iPhone would be a logical next step.