Arrive at a worthy premise. In theater, a few moments of preparation can often make improv more fun. Don't be afraid to brainstorm ideas for conversations before you even play the telephone game. Try to think of open-ended ideas containing elements of drama or comedy. A few examples are responding to a telemarketer while trying to eat supper, calling in sick to work during a busy season, or calling a floral shop from a yellow pages ad to ask about sending flowers to someone close to you.
Establish more than one character in your conversations. Help your audience believe you are speaking to a real person, even if you are only speaking with a figment of your imagination on the telephone. There are 3 ways to improv the telephone game. The first way is for one player to play. The single player picks up the telephone and participates in an imaginary call, in which she improvises her lines and creates the illusion of a person talking on the other end of the line. The second way to play is for two players to improv two separate conversations on two separate phones. The key to this way of playing is to take turns talking. (Otherwise, the two players will overlap and the audience will not hear easily.) The third way to play (perhaps the most fun) is for three or more players to play, each pretending to be in different houses. One player calls another player and this second player then calls a third, etc. This sort of improv works great for spreading gossip, spreading news or simply to illustrate how a wide variety of people participate in a community.
Let your audience overhear a story. Don't leave your audience bored. Give them enough information in your improv to imagine a story with. Of course, your conversation itself is not a conventional story. However, have fun using your imagination while you improv--let your audience believe that there is more going on in the lives of your characters than just one conversation.
Be emotionally engaged. Imagination is key to drama, and playing the telephone game is great practice for performing live in the theater. Actors who are skilled at improv are usually easily able to become emotionally involved with their work. Practice this skill when you improv. React to the conversation you are having with true emotions and responses. This will help you later when you are acting out drama in front of larger audiences.
React to your environment. Something that's easy to forget if you're doing a telephone improv is that you can use the physical space around your character. You can imagine the room you're in, or you can even be calling from a payphone in front of a gas station in the middle of the night. Make use of your environment and react to it just as you would in real life. Acting out drama is more than just reading lines and your imagination can be a great ally in the theater.