I played around with it, and you can also use Bluetooth. It took several tries to get my iPhone and iPad 2 to pair, and I still don't know what combination of tries did the trick.
Now I active the Hotspot on my phone (make sure bluetooth is on), then go to my iPad and select the phone from the bluetooth settings, and get internet. The usual signal strength indicator on the iPad is replaced by two linked circles.
I'm not sure if it's a better way of doing things. It is more trouble to set up, has less range, and is slower than WiFi, but it is an option.