Skype rival Jajah has announced a new application that would potentially allow users to turn their iPod Touch into an iPhone.

The move would allow Touch users to call and text using Voice-over-IP. All users would require is a Wi-Fi connection and the application to start making the calls.

"It's great for young users especially in colleges who have an iPod Touch and Wi-Fi everywhere," says Trevor Healy, CEO of Jajah.

But here's the catch. The product isn't available yet. Jajah is looking to partner with telecom carriers to offer it to users with a monthly subscription fee attached.

The company says it is also considering releasing it on the iPhone App store. But it is not clear if Apple will allow Jajah to bypass the telecom carrier on the iPhone.

Skype, for instance, is not available as an app in the iPhone store. But Apple has allowed Fring, an application that allows users to chat across multiple messengers including Skype.

Despite Jajah's promise, it is unlikely that the application will eat into iPhone sales. An 8GB iPod Touch costs $230 compared to the iPhone's AT&T subsidized $200. It also doesn't promise full connectivity as with a cellphone. Users have to stay connected in a Wi-Fi zone at all times to send and receive calls.

Jajah says it would prefer to 'white label' the application, which means carriers can launch the application under their own brand. "They can set a $10 or $20 monthly fee for the service," says Healy.