We could soon be getting a true competitor to the almighty iPhone, Japan’s Nikkei business daily revealed today.

Reports suggest that next month, Sony will be forming a project team with the intention of creating a hybrid that combines the functionality of a Sony Ericsson phone and a portable gaming device. In other words, a Playstation Phone. This would seem like an odd business decision, if the touted device has similar features as the current generation PSP.

A phone with the graphical capabilities of the PSP would seem unlikely, though the opportunity to tap into the casual market would have Sony salivating, considering Apples overwhelming success so far. However, they would be wise to try avoid making their current portable obselete in the process.

Downloadable games are all but certain – considering their recent direction with the PSPGo. The implementation of a similar marketplace or application store seems likely. Having a Touch screen is the ‘in’ thing right now, so it wouldn’t be hard to be expect something along those lines with the PSPhone, again playing on the success of the iPhone (as well as the DS). Taking design features from current portable systems, face buttons would also be a welcome addition to the phone gaming niche.

Despite having such a nice large screen, an issue I constantly faced with my PSP (exacerbated by the fact that its a 1000 model), was the size of the thing. You couldn’t fit it in your pocket! For a portable gaming system that just screams disaster to me. Why do you think mobile phones took off? Well... besides obvious reasons, the size of them is convenient. They fit in your pocket. So if a Playstation Phone were to be designed that would be something they should stress. Then I might once again be drawn to the portable gaming market.