It doesn't have to necessarily by a phone, but any internet connection, including DSL, cable internet and satellite internet. (Dial-up connections would work too, but the video would be choppy due to the slow connection.) Once you're both connected to the internet, I'd use something such as Yahoo Messenger to initiate a video conversation. For an overview, click here. Other services, such as MSN and AOL, also have the ability for using/sharing webcams in the instant messengers so that you can chat back and forth, live, with video, voice, and text. For MSN, click here and here for AOL. All of them are completely free, requiring only that you both have an account with which ever one you choose.

Hope this helps,
John