Robbie Bach, president of Microsoft's entertainment and devices division, said it too is considering a mobile phone integrated with its Zune digital music player, but launching such a device is not at top of its priority list.

Microsoft launched its Zune portable music player in November and set a sales target of more than one million units by the end of June. It is the first Microsoft-designed device in a market dominated by Apple, which has sold more than 70 million iPods since it was launched in October 2001.

The longtime Apple rival plans to come out with new Zune models later this year, but Bach said do not count on a phone model just yet.

"It's probably on the table of things for us to look at, but not the number one thing we are focused on," said Bach, speaking to analysts at the Consumer Electronics Show in Las Vegas.

Many Apple watchers are expecting Apple co-founder and CEO

Steve Jobs to announce an iPod phone on Tuesday at Macworld in San Francisco. Analysts estimate such a phone could sell for $200 to $400, depending on its configuration.

Analysts have said Apple may sell the phone with its own

branded cell phone service via an MVNO, or mobile virtual network operator, under which Apple leases excess capacity from other carriers.

Or, they have said, Apple might instead sell the phone "unlocked," in which case buyers could choose the cell phone service provider they want to use.

"The latest rumor we hear is that it is going to be a MVNO phone and there hasn't been a lot of successes in that MVNO space for a lot of different reasons," said Bach, who oversees the Zune business and Microsoft's video game division.

Bach said MVNO phones often have difficult relationships with the mobile operators. One of the few successful MVNOs in the United States so far is Virgin Mobile.

"Historically, working with partners hasn't been a strong point for Apple, so maybe it will find a way to work around those relationships," he said.

An Apple spokesman said the company does not comment on rumors or speculation.

Putting together a phone with a media player raises many design questions, including how to manage various inputs, the optimal screen size and battery life, Bach said.

"You have to find out what it's great at. Is it great as a phone or is it great as music player? If it's great as a music player, then it's just another iPod trying to be a phone," said Bach.

Source: Reuters