Rumours that Microsoft is considering launching a Zune Phone have surfaced again.

Ever since Microsoft launched its digital audio player Zune, there has been speculation that the company intends to launch a Zune-based handset in a bid to rival Apple's iPhone. The latest rumours pinpoint CES, which takes place in January next year, as the venue for the launch.

Microsoft still denies that it will launch a Zune phone, claiming it won't compete with phone manufacturers using its Windows Mobile operating system.

"Microsoft has no plans to make a phone. Our core focus has been and will continue to be providing software plus services and working with our partners to deliver great phones," the company said.

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Analysts, however, feel the tech giant would benefit from creating a handset.

"It's Microsoft's only chance is to build a phone," said Satoshi Nakajima, president of Big Canvas, an iPhone application development startup.

Nakajima feels that if Microsoft clearly differentiates the phone, for example by incorporating Xbox gaming function or using different software, then it wouldn't be in competition with rival phone manufacturers using the Windows Mobile platform.

Avi Greengart, an analyst with Current Analysis, agrees. "There's no doubt it makes sense. They'd have an advantage in controlling the hardware and software," he said.

However, Jack Gold of J Gold Associates, disagrees. According to Gold, the Zune hasn't made much of a dent in the music player market so that might not be the key to drawing more people to Microsoft mobile devices.

Gold also claimed another mobile phone operating system was not a good idea.

"Vendors today already have too many operating systems," he said. "Yet another OS to support is a tough sell."

Creating a separate mobile operating system and incorporating other features like Zune would also be a tough sell internally at Microsoft, he added.

"I don't know if at this point Microsoft internally is capable of doing that. It's a political issue within Microsoft. Unfortunately Microsoft's decision-making process when it comes to its mobile division isn't always rational," he said.

See also: Nokia and Microsoft planning iPhone-killer?

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