The Ultimate Guide What is VoIP and How Does It Work?

    Get a complete understanding of voice-over IP technology and how VoIP calling works in this definitive guide to a VoIP phone system

    Scheme what is VoIP

    From word of mouth and the written word through to telegrams and phone systems, modern technologies have been employed to facilitate these information flows. One of the recent developments bridging the gap between communications and data is Voice over Internet Protocol technology, also known as VoIP. VoIP services combine elements of voice communication and telephony with communication paths such as messaging, chat, and collaboration.

    Table of contents:

    What is VoIP?

    What does VoIP stand for? VoIP meaning Voice over Internet Protocol or Voice over IP, is a technology that enables the transmission of voice and other communications media such as text and video over an internet connection.

    A VoIP phone system first converts a speaker’s voice from audio waves into digital data, then sends that data to its destination via a network connection. If that destination is a regular telephone network, the signal is converted back to a telephone signal before it arrives there.

    VoIP allows to make calls to a laptop, mobile and desk devices through the cloud

    So what does VoIP mean for users? With the technology operating over the internet and other data networks, one of the greatest advantages of VoIP services is that by leveraging the power of the cloud, VoIP providers like net2phone enable intelligent conversations with customers, suppliers, collaborators, and employees wherever they are located, and using whatever device they prefer.

    Types of VoIP Protocol

    Transport Control Protocol (TCP): Data packets are connected directly from source to destination and remain connected for the duration of the transfer. Highly accurate and guarantees delivery of packets in their original order.

    User Datagram Protocol (UDP): A connectionless protocol which prioritizes speed over accuracy. UDP has no control over errors but is useful for real time VoIP applications where a continuous stream of data is required.

    Session Initiation Protocol (SIP): A signaling protocol which informs a VoIP system to initiate, maintain, and terminate communication sessions. Also responsible for defining the format of messages and the sequencing of communication.

    Related: What is SIP Trunking and How Do SIP Trunks Work?

    Real-Time Transport Protocol (RTP): Used in conjunction with SIP to deliver audio and video over IP. Typically runs using UDP but also employs a Real-Time Transfer Control Protocol (RTCP) to monitor transmission statistics and quality of service.

    How is VoIP different than Traditional Phone System?

    Rather than relying on a telephone company’s wiring, IP telephony, internet telephony, or web calling converts voice calls and other multimedia content into digital data, which can then be transmitted over the internet, enterprise local area networks (LANs) or wide area networks (WANs). In this way, VoIP technology enables users to make voice and video calls or send various kinds of messages from a computer, mobile device, VoIP telephone handset, or any web browser that supports WebRTC.


    Transmit voice data packets via internet

    Requires physical hardware such as copper lines to function

    Require a steady electrical supply, together with fast and stable network data connections

    Needs an analog phone (physical device) connected to PSTN

    Maintenance costs are also kept to a minimum because everything is hosted digitally in the cloud

    Simple to operate, and most people are comfortable with using them

    Offering remote working options is easier than ever as employees simply need to log in from any location and can make and receive calls as if they were in the office.

    More secure as there are fewer points of failure, and they are less prone to social engineering type scams

    This is quick break down of the main differences between VoIP and Landline phone systems. More detailed explanation, you can find in our guide below.

    Related: VoIP vs Analog Phone System

    WebRTC, SIP, PBX are not VoIP. What Make Them Different?

    Here is a list of other technologies sometimes called VoIP, but are not:

    WebRTC (Web Real-Time Communication) is a technology very similar to VoIP. It also allows users to make and receive calls as well as other multimedia data but only using a web browser. VoIP does the same via installed software or an App.

    SIP Session Initiation Protocol is not a technology, but the most important component in VoIP phone system. It is responsible for setting up connections between different devices including computers, VoIP, landline, and mobile phones.

    Cloud PBX stands for Cloud-based Private Branch Exchange and refers to a virtual PBX system that works together with VoIP and hosted on the internet. It answers the calls and routes them to the right department or user extension

    What is VoIP Call?

    In practical terms, VoIP call means converting voice signals into digital signal that is then transferred over a data network. At its destination, the IP call data is translated into a regular phone signal.

    In general, there are three principal mechanisms for making a phone call over the internet :

    1. An analog telephone adaptor (ATA) lets you connect a standard phone to your computer or internet connection, and acts as an analog-to-digital converter. A cable connection from your handset to the ATA (and perhaps the installation of some software, depending on the manufacturer), enables IP telephony.
    2. IP phones with an RJ-45 Ethernet connector look and feel like normal phones, but connect directly to your network router, and come with all the necessary hardware and software for making IP calls.
    3. Peer-to-peer or computer-to-computer connections use software as the medium for making phone calls over the internet. An internet connection, sound card, microphone, and speakers are the required physical infrastructure.

    Related: How Does IP Phone Work?

    What is a VoIP Caller?

    A VoIP caller is simply someone who is calling you using a voice over internet system, rather than a conventional phone network.

    You can identify a VoIP caller through the caller ID system of your phone. Alternatively, you can use a reverse phone look-up service. If you use a VoIP phone with a packet analyzer, this can display the IP details of each call you receive, and look up the associated IP address.

    What is a VoIP Number?

    Also known as a virtual phone number, a VoIP number is a telephone number that is assigned to a specific user, rather than a specific phone line.

    We have already observed that voice-over IP  is largely a location-independent system. Area codes have no particular relevance to VoIP phone numbers. In fact, VoIP users can choose a phone number with any area code. This enables businesses to establish a local presence in different regions, which can be very lucrative for businesses.

    How Does VoIP Work?

    Rather than depending on cell towers, wires, or fiber-optic cables, an Internet Protocol call is routed via an internet or data network connection.

    So, instead of being tied to a specific location or area code, VoIP or Voice over IP calls can be made using a smartphone, tablet, laptop, desktop computer system, or landline phone with a converter -- as long as a stable data connection is available. 

    In general, there are two principal mechanisms for making a phone call over the internet

    How Do VoIP-to-VoIP calls Work

    When you talk to a VoIP phone, your voice converts from analog data to digital data. A VoIP phone connected to a DSL or cable modem. The modem sends digital packets over the Internet to the VoIP telephony provider which routes them to the number that was dialed.

    The VoIP phone on the other side converts digital data packets to an voice signal that you can understand.

    How does VoIP work for VoIP-to-VoIP calls

    How Do PSTN-to-VoIP Calls Work

    An analog telephone adaptor (ATA) lets you connect a standard phone to your computer or internet connection, and acts as an analog-to-digital converter. A cable connection from your handset to the ATA (and perhaps the installation of some software, depending on the manufacturer), enables IP telephony. 

    Diagram showing how PSTN-to-VoIP calls work


    What are the Advantages and Disadvantages of VoIP

    What is an advantage of using VoIP calling? As we have already learned, one of the major advantages of voice over ip calling  is being able to use a data network or internet technology for communications transmission. VoIP users can have intelligent conversations through the power of the cloud, which facilitates communication exchanges all over the world- wherever they are located, and with whatever device they prefer.  

    However, that’s just one of the plus points. In this section, we’ll take a look at the various VoIP advantages and disadvantages.

    Advantages of VoIP

    • Cost Savings: VoIP users save on the costs of installing and maintaining physical infrastructure, as they don’t need to manage the hardware and cabling associated with a conventional phone system. Using an internet connection, the cost of VoIP international calls and domestic phone calls is also drastically reduced, when compared to traditional phone charges.
    • Flexibility and Scalability: Cloud-based VoIP phone systems allow businesses to extend full communications functionality to remote workers and geographically dispersed sites. Voice over IP services enable enterprises to quickly and easily increase or decrease their number of users and communications features, in response to changing conditions.
    • Easy to Install: installation timeline not weeks, days, even hours - just minutes
    • Number Portability: Most reliable VoIP providers will enable users to keep their existing local business phone numbers, even if they move to a different service. Voice over IP users typically have access to more numbers than with the public switched telephone network, or PSTN.
    • An Abundance of Features: As we’ll discuss in the next section, VoIP systems offer a multitude of enterprise-class communications features.
    • SIP Trunking: With net2phone’s SIP Trunking solution you are able to benefit from all that the cloud has to offer. It is not even necessary to replace your existing equipment as with SIP Trunking you can transfer pockets of multimedia data as opposed to transferring voice data only with VoIP.

    Disadvantages of VoIP

    • Reliance on Power and Internet: VoIP technology relies on a steady electrical supply, together with a fast and stable network data connection. An outage or disruption to either of these utilities can lead to dips in the performance of voice over internet, or even complete loss of the service.
    • Potential Connectivity Issues: Even though super-fast broadband and leased line connections are widely available in much of the world, there are still regions where internet connectivity is unreliable, or even non-existent. In such areas, issues with latency (data transfer delays) and packet loss can lead to a deterioration in call quality and data transmission.

    Top Features of a VoIP Phone System

    Voice-over IP calling tends to come with many robust features when provided by a business-class VoIP system, such as net2phone. Main IP based calling features usually include, but are not limited to the following: 

    • Auto-Attendant: “Electronic receptionist” with advanced call handling and routing.
    • Video Conferencing - Secure, seamless face-to-face video interactions with net2phone Huddle - fully equipped with live emoji reactions, video call recording, and more.
    • Voicemail to Text Transcription - Access your voicemail messages even easier by receiving them as transcribed text sent via email or text message.
    • Instant Messaging (IM) - Send and receive text messages, pictures, and multimedia messages from your business phone number - from both the web and mobile applications.
    • Mobile and Local Number Portability - Moving from another phone system? Keep your existing numbers and extensions and we’ll port them for free.
    • Presence Panel: Displays who is available to take a call, who is busy, etc.
    • Call Forwarding - Create rules that automatically route callers to the next available person or department based on criteria you set.
    • Ring Groups: Allows all extensions in a group to ring simultaneously.
    • Incoming Call Queues: Allows calls to be distributed and routed accordingly.
    • Music On Hold - Let your callers hear music, recorded audio, or customized marketing messages while they are placed on hold.
    • Call Recording - Enable call recording to log and save your calls so you don't miss important details, or to use the interactions for employee training.
    • Call Analytics - Analyze calling traffic and history, user statistics, identify patterns and trends, and enable smarter business conversations with full visibility.

    Concerning VoIP features, net2phone President Jonah Fink observes, “Just as the young millennials are relying on chat and messaging, we believe that the business community will do the same and we very much look forward to bringing them the ability to use alternative methods of communicating, along with our hosted voice, all in a single offering. We are constantly evolving our product set and improving our channel partner tools to meet today’s ever-changing needs as we prepare for tomorrow’s demand. net2phone is not looking to follow, we are looking to innovate.” 

    How Much Does VoIP Cost?

    Price levels for internet calling vary widely from one VoIP provider to another. VoIP calls may be free or they may come with a charge. In the VoIP industry, the standard practice is to pay a monthly or annual fee for all of your lines.

    To give you an idea about VoIP and traditional phone system costs we compared their initial and monthly costs, device costs, and international calling costs. 

    Traditional Phone System

    Initial costs: $0-$19.99 per line

    Installation fee: $50-$99.99

    Monthly costs: $17-$29 per line

    Deposit: $50-$400 per line

    Device costs: Free (for some plans)

    Maintenance monthly fee: 80+

    International calls: Free to 40+ countries.  $0.01+ per minute to other

    International calls: $1.00+ per minute

    How Much You Can Save Using VoIP?

    Businesses report huge cost savings when switching to cloud PBX – 90% saved on international call bills, 40% on local phone bills, and 75% on operational costs, equating to $1,200 of savings for each phone line they have.

    VoIP cost and savings

    VoIP Equipment and Hardware

    One of the main advantages of employing a VoIP unified communications solutions is there’s not a lot of equipment required to facilitate it. There are however one or two pieces of hardware which are essential/nice to have.

    Essential Equipment and Hardware

    A device from which to run the VoIP platform and initiate calls is essential to a functioning VoIP system. With many communications providers this can be a computer, laptop, smartphone, or tablet.

    Any connected device which is compatible with your service provider can be used to make calls.
    If you are calling from a busy office or contact center, you will need either a headset or a handset to make calls.

    Customer privacy is important, so this will be essential for making customer-facing calls.
    You will also need an internet connection. If using a mobile device, this can either be a mobile internet protocol such as 5G or any WiFi you might have access to. In an office setting, you will require a commercial internet package and ample ethernet ports for the device you have installed.

    Optional Equipment

    You may decide you prefer a physical device from which to make calls, in which case you will need a VoIP hard phone. This type of device looks very much like a traditional landline telephone but will often carry VoIP specific features such as call transfer, multiparty calling, and support for multiple VoIP accounts.

    How to Choose the Best VoIP Provider in 2022?

    Which is the best VoIP provider? The answer will depend on your needs, budget, and circumstances.

    Here are some general tips for selecting the best business voice over IP providers:

    • Identify the communications features that you need most.
    • Take future expansion or business growth into account.
    • Establish the size of your budget.
    • Make a comparative assessment of voice over internet  providers, and what they have to offer.
    • Look for testimonials, reviews, and customer referrals for the providers on your shortlist.
    • Don’t forget to factor in what kind of technical support they have available.

    For Sole Proprietors And Micro-scale Enterprises

    At the single owner or micro start-up stage, incoming calls are vital – so a customizable auto attendant phone system is a must. Call routing to your designated best numbers, or to your best qualified employees are the key features to look for. Custom messages for promotion and Music On Hold can help boost your image.

    For Small Offices

    For diverse small and medium-sized enterprises (SMEs) VoIP providers should offer small business phone system solutions with a variety of VoIP options together with calling features and levels of integration with web and mobile applications or office software.

    For Large-scale Enterprises

    Companies with large workforces and numerous phone lines should expect to see dramatic savings from VoIP – from 30 to as much as 90%. Shop around for a balance offering the best feature set and the highest savings.

    For Dedicated Call Centers

    If you operate a call center, many business VoIP providers offer dedicated packages to address your need for huge numbers of incoming and outgoing calls, reduced waiting times, comprehensive feature sets, and quality assurance.

    Look for call recording facilities with analytics and reporting tools, to enhance your call monitoring and customer experience refinements. Manage customer calls and interactions directly with an intellegent cloud contact center.

    For All Users…

    The ideal VoIP solution should be fully capable of meeting all the operational and business needs you specify, with options to reconfigure or customize your subscriptions in response to changing conditions.


    Do I Need a Voice-over IP Phone System?

    Look at your existing phone system and ask these key questions:

    1. Will I need to keep all of my existing system and just use adapters or converters to get voice over IP capability? 
    2. Can I replace some of the components? 
    3. Do I have to replace the entire set-up?

    If you run a small to medium-sized business in 2022, VoIP is something that you will need to elevate your communications capabilities to compete with same-size enterprises and also ones larger than your own. 

    net2phone’s small business phone system is designed to fuel growth with every conversation.

    As Jonah Fink, President of leading VoIP provider net2phone observes: “Law firms, real estate offices, medical practices, really any type of professional service or retail business, all share the common goal of needing more features and functionality to improve their business’s communication and add savings to their bottom line. net2phone understands that voice is the lifeline of business communications today and we’re excelling at providing excellent service every step of the way.”

    Whether you’re working from home or the office, voice over IP provides a cost-effective and scalable business communications solution with multiple features -- and one that’s available anywhere with access to the internet.

    With PSTN (Public Switched Telephone Network) phone systems being phased out in many regions, you’ll also need VoIP phone systems to stay in line with current prevailing technology and new business norms. 

    Can VoIP receive text messages?

    Yes, VoIP can receive texts sent from mobile devices or other VoIP networks.

    Is VoIP Reliable?

    Absolutely. VoIP uses a combination of advanced internet protocols to ensure calls remain clear and stable.