The city of Taipei, in Taiwan, could have 200,000 people making phone calls using wi-fi by the end of 2006.
Some mobiles can switch between wi-fi and the phone network
Ten companies are pushing a "Taipei Easy Call" initiative which involves mobiles which can switch between calls using wi-fi and the phone network.
"If this is successful, then the model could be copied in cities elsewhere in the world," said Daniel Wongg, of the Taipei Computer Association.
The wi-fi mobiles provide a cheaper alternative to mobile phone calls.
"This is the world's first internet phone system using the whole city, rather than a spot, as a wireless operation environment," Mr Wongg told AFP news agency.
The initiative also involves switching schools and government offices from the traditional phone network to one using internet phones, known as Voice over Internet Protocol (Voip).
Before the end of August, hundreds of schools will be installed with an internet telephony system and 400,000 school children, parents and teachers will be encouraged to use the new system.
The mayor of the city, Ma Ying-jeou, said that the money the city saves from using the new system in schools will help provide better lunches for students.