Chicago (IL) - Speculations about Microsoft’s iPhone beater are about as old as the iPhone itself. Rumors that both Microsoft and Nokia are worried about Apple’s advances aren’t dying down and if we believe the latest wave of speculations then both companies could be working together to prevent Apple from repeating even a fraction of the success the company had with the iPod. Microsoft’s effort to integrate Zune Marketplace content with Windows Mobile and Nokia handsets is seen as part of this effort.

Microsoft remained conspicuously mum on the possibility of a Zune phone, neither confirming nor denying Zune phone speculations. Whenever media presses Microsoft executives on the matter, the same answer is given: Microsoft is more than happy with its position in the mobile phone space. In addition a Zune phone may make no sense at all, given Microsoft’s less than impressive Zune music player and the general consensus that Microsoft might remove the device from the market soon. There could be room for a new Zune device, but the brand name needs to be cleaned up.

A Zune phone remains only a rumor at this point but there are signs that Microsoft will at least leverage the Zune brand and Zune Marketplace content to slow down the iPhone.

According to a report published by UK tech site Electric Pig, the software giant is now teaming up with Nokia to launch an "all out assault" on Apple, while there is still time. The report cites an unverified "well placed source within Microsoft" that revealed details behind Microsoft-Nokia partnership to the Zunescene web site. The Zune team is reportedly working with Nokia to integrate the Zune Marketplace with Nokia smartphones. This should not come as a surprise as most industry watchers have been repeatedly calling Microsoft to expand the Zune Marketplace content (music, movies, TV series, etc.) to Windows Mobile platform, PCs, Xbox, etc. It is unknown at this time if the Nokia Music Store and the Zune Marketplace will merge or will coexist.

The non-exclusive deal appears to be limited to content delivery only at this point. However, a Zune phone would be a conclusive move. Yes, we are speculating but you must admit that such a device may make sense. Microsoft already knows how not to create a MP3 player, how not to create a Zune cellphone (see Motorola Rokr) and how a successful Zune cellphone could look like (iPhone). The software giant first partnered with Nokia two years ago to bring its online services to Nokia handsets (such as Windows Live search, Windows Live Messenger and Hotmail.) It was a limited collaboration and it never reached the operating system realm.

Microsoft and Nokia have the same rival to battle. Other handset vendors have failed to crank out iPhone killers or have delayed potential competitors. However, the combined resources of Microsoft and Nokia present an interesting opportunity to challenge Apple in a highly profitable market segment.

At the moment, Microsoft seems to be content with expanding the Zune brand and the Zune Marketplace content into the Windows Mobile space and Nokia mobile phones. Most analysts do not believe that Microsoft will make a Zune mobile phone at this time. "The business model of Windows Mobile is totally different than Zune," Jupiter Research analyst Michael Gartenberg wrote in his blog. "Zune worked to some extent since the technology Microsoft was licensing wasn’t getting them anywhere. As it was, hardware partners were taken aback by Microsoft’s actions but were still comfortable licensing."

According to the analyst, Microsoft now has 20 million Windows Mobile licenses out there and is "gaining traction." It also has "a great stream of partners" that make more and more Windows Mobile-powered phones for business and personal use, so Microsoft’s entrance into the handset hardware business would potentially affect this scenario in a negative way. "Windows Mobile is a core platform and OS. No one has ever been successful licensing technology platforms to others and then competing with a device of their own. Apple failed (twice), Palm and Nokia all tried it and it just can’t be done," Gartenberg wrote.