The telephone effect (or phone effect) is heard in recordings all the time. It is basically a simple EQ effect that simulates the filters used in telephone systems. There is a high pass filter at around 400 Hz and a low pass filter at around 4,000 Hz (4 kHz). This can obviously be adjusted to taste, but the resulting sound is very midrange heavy and small sounding.
It is often used for a vocal at the beginning of a song later to be removed and reveal the full sounding vocal. It also is commonly heard with additional vocal parts (or adlibs) panned to the sides or sitting in the background. The telephone effect can be very effective at giving a different character to additional vocals. It can be used on drum loops or just about anything to make it sound like it is being heard through a telephone.