What is VoIP and how does it work?

Lazaros Agapidis

Dec 02 2023 comments- 2

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Like many cutting edge technologies, Voice over IP, or VoIP, has become a buzzword that sales and marketing departments use extensively to wow their potential customers.  But what is VoIP truly, and why is it so great?  What are its advantages, and how can you put it to work for your business?  In this article, we will try to help you cut through the hearsay and fanfare by answering those questions in a comprehensive and easy to understand manner.

What is VoIP?

VoIP is most often associated with what is colloquially referred to as making telephone calls “over the Internet” and the benefit that is most often cited is lower service costs.  Although this does accurately describe some of its functions and benefits, it only references a very small subset of what VoIP is and what its true capabilities and advantages are.

VoIP is more accurately described as a framework of technologies and methodologies that are used to allow telephony services to function over IP networks.  In other words, VoIP enables you to talk over the phone and have your voice be transmitted over the same infrastructure as your data network, which can and often does include the Internet.  In this sense, VoIP simply becomes one more network service that can be added to the likes of web, email, file sharing, video on demand, and instant messaging, all of which share the same underlying communications infrastructure.

In order to understand the full implications of this, it is useful to first comprehend conventional telephony and how it compares to VoIP and the IP networks it relies upon.

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Conventional Telephony Technology

Telephony as a service, has been around for over one hundred years.  Until late in the twentieth century, the primary method of interconnecting a telephone call was by creating a physical link between the two telephone devices wanting to communicate.  Telephone switches at switching offices would create this link by mechanically or electronically making the appropriate internal connections based on the dialed number.  This would essentially result in a complete electrical circuit between the two phones, as shown in the diagram below, allowing the voice to be transmitted in much the same way as from a microphone to a speaker.

(image credit: https://computernetworkingsimplified.wordpress.com/tag/circuit-switching/)

This process is called circuit switching and is a fundamental concept of traditional telephony.  As these technologies developed, additional advances were made but the fundamental architecture remained.  Even with the advent of the digitization, fiber optics, and the mobile phone, this circuit switched architecture became more and more difficult to adapt and to innovatively improve upon for the needs of the modern business.  A newer, more flexible way of routing voice calls had to be established and this is where VoIP comes in.

VoIP Technology

Data networks based on the IP protocol, a much younger technology, started being developed in the 1970s and 80s, but progressed completely independently from telephony.   Data networks were never designed for use with voice, but by the 2000s they were robust, fast, and flexible enough to accommodate the transmission of voice.  VoIP takes advantage of the packet-switched nature of an IP network.  Unlike a circuit-switched arrangement, which creates a dedicated physical circuit from end to end, a packet-switched infrastructure breaks the voice down into a stream of packets that are individually and independently routed through the infrastructure.  As the packets reach the destination telephony device they are reconstructed and played back on the device’s speaker.

This packet switched infrastructure can consist of a combination of any type of IP network including small office/home office networks, enterprise networks, private networks, VPNs, or the Internet at large.

It is this capability of leveraging existing interconnected IP networks to transmit voice packets that makes VoIP such a useful and advantageous technology.

Advantages of VoIP

VoIP’s primary advantages are all direct results of its ability to use and share an IP data network infrastructure with other services.  These advantages include:

Convergence – Traditionally, telephone and data networks were two disparate entities.  Whether in the context of an enterprise or a telco network, two separate communication infrastructures had to be maintained in order to have functioning telephony and data communications.  Convergence is a term that describes how VoIP has allowed telephone and data networks to converge into one infrastructure, reducing both complexity and costs.

Flexibility of location – VoIP offers flexibility in the fact that voice services can be transmitted to any device that has Internet connectivity.  This means enterprises can easily provide internal telephone extensions to their remote workforce no matter where they are in the world.  Contact center agents can participate in caller queues from any location, even from the comfort of their own homes.  Advanced telephony features and services can be delivered to your smartphone or tablet.  The physical location of the end user has little meaning, as long as IP connectivity is available.

Scalability – Because VoIP services are now simply one more network service running on the same communications infrastructure, they can be provisioned in much the same way as data network services.  As the number of VoIP clients and required voice channels increases on any particular service, by simply adding more servers and network resources to serve them, scalability is achieved easily.  There is no need for the use of costly dedicated circuits as would be the case in traditional telephony.

Low usage cost – VoIP has always been well known for its “cheap rates” as far as per-minute telephony charges go.  For Internet Telephony Service Providers (ITSPs), this is made possible due to the fact that, unlike traditional telephony, already established IP networks (such as the Internet, or other private networks) are used to transmit voice.  Very little additional infrastructure is necessary thus making such a service quite cheap.  In addition, per-minute costs can be eliminated completely for calls made between users on a particular enterprise network.  A large company with multiple offices across the country and around the world, using an intelligently designed corporate network, can route internal calls over the private data network already interconnecting their sites.  This can further be extended to VoIP clients running on smartphones, which can be reached over the Internet for no cost at all.

Integration with other services – Because VoIP itself has become an IP network service, it can easily be integrated with other network services.  This concept is also known as Unified Communications, or UC.  UC can integrate telephony with services such as video, instant and voice messaging, presence, and email, to name a few.  It can also be incorporated into web-enabled voice communications, as well as database integration with CRM systems for use in contact center scenarios.

Multiple end-device types – VoIP allows calls to be terminated to either a physical IP phone that sits on a desk, or to what is known as a “softphone” or VoIP client, which is a piece of software that runs on a smartphone, tablet, laptop, or computer. Many Internet Phone providers today, such as Ringcentral, have apps for desktop or mobile to facilitate phone calls.

VoIP deployment methods

Because VoIP is based on IP networks, many of the newest technologies used for networks in general are also made available to IP telephony implementations.  These include cloud-based services as well as server and network virtualization.  Some of the applications made possible by these technologies include:

Cloud-based single user – If you are just a single user, you can get a single phone number that connects to the Internet and terminates on your user device.  As long as you are connected to the Internet, no matter where you are in the world, you can make and receive telephone calls to and from the public telephone network as if you were physically at home.

Cloud-based IP PBX – Larger businesses require telephony services for multiple employees.  You can easily implement this using a cloud-based IP Private Branch Exchange (IP PBX).  Much like a traditional PBX, such a service will provide all your telephony end devices with an internal number and access to the public telephone network.  You do not need any equipment on site as only an Internet connection is required.  Such a service can actually be purchased as a subscription service, or it can be implemented by your business “on the cloud” where your staff has control over the IP PBX.

Excellent examples of services that offer multiple options for both single user and IP PBX solutions include RingCentral and Vonage.


VoIP has come a long way since it was first implemented commercially in the mid-1990s.  It has since gone through many stages of development and can safely be considered a robust and mature technology.  By no means is this an exhaustive description of VoIP, but hopefully it will give you a solid fundamental understanding of what it is, what it is not, and how it can be a significant benefit for your business.

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Questions & Answers

Dale Cormack

I have a land line for home alarm system. Can the work with the alarm system?

Lazaros Agapidis

It will depend on both which VoIP provider you are using and which alarm system you have. We suggest asking your alarm company what the requirements are in order to help you choose a VoIP system that is compatible.

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