Many have been speculating on the new iPods Apple intends to announce, but the rumor mills on the other side of the camp are busy churning as well. Microsoft may be creating a Zune phone to rival the iPhone, according to sources from Citi’s Global Technology Conference in New York.

Though the software giant has yet to confirm (or deny) the release of a new Zune over the holiday season, there are still advantages should Microsoft decide to get in on the game. With services like VoIP and Skype gaining huge followings, the Zune could easily become the device of choice should one want to make cheap voice calls or send an instant message from a wireless hot spot. The question remains as to whether or not Microsoft intends to jump on the merry cell phone bandwagon or if they want to continue to expand their relationships with handset makers such as HTC. Until then, let the speculation continue!

Oh, and before you go, look under the jump for a “commercial” of the Zune Phone.

[youtube]http://youtube.com/watch?v=nRKIDdIaFyE[/youtube]

[via pc world]