According to a new Nikkei report, Sony is planning to add cell phone functionality to its mobile gaming device the PSP (PlayStation Portable).

The strategic move comes from intensifying competition from the iPhone that is being pushed more and more as a gaming device.

In fact, companies such as Capcom who have traditionally developed console platform games have announced they would also release select versions for the iPhone platform.

The Nikkei reports Sony plans to set up a project team by July to design the new product.

It is believed the device would still use the current game discs, offer the phone functionality, but would not be branded under the PSP name.

This is not the first concrete PSP phone rumor, back on June 1, 2007, Sony applied for a U.S. patent for a phone PSP device.

Sony has declined to comment on the recent reports.

The iPhone has changed the tech landscape, and is forcing companies to diversify and support the mobile platform altogether. Other companies such as GPS-maker Garmin who have traditionally developed standalone GPS devices, face a significant threat from the iPhone and hence have announced their support for the platform.