Voice over IP: What it is and why businesses use it

Voice communications through the internet—formerly known as IP telephony

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A woman using Voice over IP to make a call
VoIP-enabled desk phone and mobile phone

First, what exactly is Voice over IP?

Voice over IP (internet protocol), aka VoIP, is the technology that lets you make voice calls using broadband connections. This means that unlike with phone calls, you don’t need a public-switched telephone network (PSTN) to make a call. To make and receive calls over the internet, you can use any VoIP-enabled device, a computer with VoIP software, or even a landline phone connected to an analog telephone adapter (ATA).

How does voice over IP work?

When you speak into the microphone of your device, you generate analog voice signals, which are converted into packets of data (aka “compression”). These VoIP packets are transmitted over the internet and converted back to analog voice signals (or “decompression”) for the person on the other end to understand. The process of compression and decompression is made possible by special algorithms called codecs (COder-DECoder).

VoIP technology is made up of different protocols (think of them as rules built into your software) working together to deliver voice and multimedia communications (like when you’re video-chatting with someone!) over an IP network. These work simultaneously in real-time and do different things, like:

Illustration showing how coding and decoding works

Session initiation protocol (SIP): Real-time convos

Session initiation protocol is responsible for starting, establishing, and ending real-time conversations between two or more people, whether on a two-way or multi-party call. This is possible through “SIP trunking,” which is a service that’s usually offered by an internet telephony service provider (ITSP).

The ITSP uses a SIP trunk to connect one or multiple channels to your private branch exchange phone system (or PBX), so you don’t need a physical connection to a telephone company—and you can make calls over the internet. Think of a SIP trunk as the virtual version of a traditional phone line (it's installed over your internet connection rather than through wires).

Real-time transport protocol (RTP)

Real-time transport protocol is responsible for carrying every media stream—which, again, in the VoIP world exists as a “digital voice data packet”—back and forth during a call. This is also what makes it possible for you to watch your favorite Netflix and YouTube shows. It relies on other VoIP protocols too, like transmission control protocol (TCP) for accuracy and user datagram protocol (UDP) for speed. Oh, and RTP has a secure version too: secure real-time transport protocol (SRTP).

Fun fact: Many VoIP service providers use just one type of protocol. To ensure first-rate call quality, some companies, like RingCentral, employ multiple protocols.

Why is voice over IP so important?

To say that VoIP technology has changed the way that people and businesses communicate would definitely not be an understatement.

For one, calls aren’t restricted to a single device anymore as people can now choose to use IP phones, computers, or mobile devices. That’s because VoIP allows different forms of communication—voice calls, SMS, video calls, conference calls, etc.—to take place on a single IP network. Not only that, businesses can also get rid of their clunky, on-premises PBXs (think of those old desk phones that every office used to have) too.

So ultimately, what do these things mean for businesses?

Employee talking to a colleague

The advantages of VoIP

Significant cost savings

Because VoIP services use the internet, you don’t need to pay all the costs that come with traditional phone companies. Basically, it saves you money. Potentially, lots of it.

Direct cost savings can come from:

  • Lower hardware expenses: Every company knows how expensive it is to set up a traditional phone system. You’ll need to pay for, among other things, the dedicated copper wiring (which carries the voice communications) and the on-premises PBX system (which connects the landline phones in your office to one another). With VoIP, you could do away with all that hardware.
  • Lower operational expenses: When a call is routed through a public-switched telephone network (aka. A traditional phone network that uses copper wires), a dedicated circuit is opened between the caller and the recipient, and it should remain open until the call ends. Otherwise, you'll hear delays on the call—this is probably something you’ve experienced on long-distance and international calls, because it’s harder to keep the circuits open when voice signals take longer to reach their recipient. (This is also why phone companies charge for calls  like this on a per-minute basis.) Because VoIP relies on the internet, you won’t get this issue. You aren’t charged by the minute either, which saves you even more money, especially if you make lots of long-distance and international calls. (VoIP providers charge on a subscription basis, with plans that cater to specific needs.)
  • Lower recurring expenses: Ongoing expenses like repair and maintenance fees can easily overwhelm your budget. But not if you get a hosted VoIP service, which typically rolls these costs into reasonably priced monthly subscription plans that fit your needs. You can sometimes even get additional features like call waiting and an auto attendant at no extra cost.

Now, let’s look at indirect cost savings:

  • A remote work setup: With advanced functionality like conference calling and video conferencing, voice over IP makes it easier and more efficient to work remotely, which cuts down the costs of your office and utility bills.
  • Repurposed human resources: Some advanced VoIP features can even cover repetitive tasks for you so that you can focus on actually valuable work. For instance, you might be thinking of hiring someone to handle phone calls (which translates to money spent on additional salary and benefits) or maybe giving the work to an existing employee, (which would probably require you to give them a raise). With the auto attendant feature, you won’t need a receptionist at all. That’s a load of savings every month.

More advanced features for both small and large businesses

The average VoIP phone system today is loaded with sophisticated features that you won’t be able to find on traditional systems. What’s even better? Most of the time, you don’t need to pay extra to have them.

Advanced call routing and voicemail-to-text are just a few of the many VoIP features that make small businesses look like big, sophisticated companies. On the other hand, large enterprises can appear more approachable by using a local number, which is possible with VoIP services.


Your VoIP system grows with you, letting you easily add and delete phone lines or extensions any time. Again, you don’t have to pay anything extra to do this. Bonus!


VoIP allows you to make and receive calls from anywhere using any device (and using the same number) as long as there is an internet connection. It follows you wherever you go, and you’ll still be able to use its features without a hitch. Having remote teams or letting people work from home is pretty much impossible with traditional telephone systems, in which your number is assigned to a specific line.

Employee working from home using a laptop

The disadvantages of VoIP

Call quality

If you haven’t looked too deeply into VoIP, you’ve probably wondered about its call quality. To be fair, your VoIP service won’t be great if you’re low on network bandwidth. But the fix for that is pretty straightforward: You just need to run a test on your current network to make sure you have sufficient bandwidth! As long as you have an adequate internet connection, routers and cables, you can easily avoid issues like lost audio and latency (delays).

Support for emergency calls

Because VoIP calling happens over the internet, it’s almost impossible to trace the locations of callers. This can be a huge problem if there’s an emergency. Of course, that’s not the case with fixed VoIP, which is the type of VoIP service commonly used by businesses. It still uses IP telephony—but with your virtual number linked to a physical address, your service will be able to support emergency calls.

Fixed vs. non fixed VoIP
In fixed VoIP, the service is associated with the account user's address and can’t be obtained by anyone outside of the country. RingCentral is a good example of a fixed VoIP provider.
A non-fixed VoIP service, on the other hand, doesn't need to be associated with a physical location and is therefore easily obtainable by anyone from outside the country. Common non-fixed VoIP providers are Skype and Google Voice (this is probably the type of VoIP service most people are familiar with).

VoIP hardware and software: what do you need to set up a voice over IP phone system?

Thanks to VoIP, businesses are working smarter and more efficiently. In a highly competitive global economy, that often means being able to tap into the best talent from around the world—and in the process save on real estate, equipment, electricity, and other overhead costs. That's all possible with an awesome internet phone setup. Here are a few options to help you make the most out of VoIP technology: 

Business routers

A router is a network device that forwards data packets between devices across a network or from devices to the internet. With proper IP addressing on every endpoint, it can prevent packet loss even when the network is congested.


VoIP handsets work pretty much like regular handsets and typically have the same features. The main difference is that these handsets are powered by the internet.

Analog telephone adapters (ATA)

Your existing landline phone (and number) could support VoIP services, provided it’s connected to an analog telephone adapter. The ATA converts analog signals into digital data, which makes VoIP calling possible. The downside to it is that the adapter doesn’t give you access to all the cool features you’ll find in standard VoIP handsets. A touchscreen display, for instance, is something your trusty landline phone may not have.

Computers and mobile devices

Your computer or mobile device can be used as a VoIP telephone too! All you need to do is install VoIP software on it. That’ll let you make voice calls over the internet without a conventional telephone (or relying on cellular service).

What type of VoIP telephone should you get?

VoIP phones come in two forms: hard phones and softphones. See which one would work best for your business:

VoIP-enabled desk phone

Hard phones: physical IP phones

  • Desk IP phones: Connected directly to your router, these standard business VoIP phones look like regular landline telephones. The difference is that they typically have an LCD screen that displays programmable buttons, caller ID, and more. Some desk IP phones even give you the option to customize the background image!
  • Wireless phones: These are just mobile handsets with the functionality of a desk IP phone. Wireless phones have built-in Wi-Fi so you can make calls wherever there’s a wireless broadband connection.
  • Conference phones: You’ve seen these in big conference rooms. Conference phones let you call multiple people at once and have a big meeting even when the callers are scattered around the world.
  • USB phones: A USB phone connects to the USB port on your computer, so you can make VoIP calls (as long as you have VoIP software installed).

Softphones: software-based IP phones

A softphone is essentially a software program installed on an internet-connected device like a personal computer or a smartphone. So you can basically use a computer as a hard phone (think of it as a software-based IP phone).

What’s the best VoIP phone service?

Well, it depends on you! The best VoIP phone service is the one that suits your business needs and is delivered by a VoIP solutions provider that you trust. This last part is important: From saving you thousands of dollars to streamlining your business operations, a VoIP provider should guide you every step of the way.

Here’s a quick guide in choosing the perfect one for you:

There are tons of services out there that range widely in price (and quality)—sure, we’re biased, but we’d recommend checking out at least one option from a top VoIP provider.

RingCentral has been a global unified communications and collaboration solutions leader for years. Beyond the scalability of a hosted PBX and the flexibility of VoIP, we offer extended services too, like technical support, maintenance, and network monitoring to give you a top-tier business VoIP system. If you ever need cloud consultants who are experts in VoIP, or have questions about updating your company’s communications, we’ll be right here.

Pro-tip: Switching providers? You might need to check with your current vendor about local number portability (LNP) issues. The Federal Communications Commission regulates LNP in the United States. To learn about number portability in your country, find your local equivalent of the FCC.

1. Decide how many users you’ll have.

How many of your employees will be using your business phone system? Defining users will help you make better decisions for the future (e.g., how many lines you’ll need, what VoIP features matter most for your business, etc.). Also, keep in mind that many providers charge on a per-user basis.

2. Make sure you have a fast, stable internet connection.

Test your existing internet connection to see if it can support your VoIP migration, given the number of users who will be on your system. This is key. It’ll save you from budget and productivity losses caused by poor call quality. If you’re expecting heavy voice traffic, you might need a virtual local area network (LAN) or a separate subnet that’s just for VoIP phones.

3. Determine what features and services are most important to you.

Compare the VoIP solutions you need with the potential providers’ capacity to address them. Do you make a lot of conference calls? How important is an advanced call routing solution? Do you need mobile VoIP support through Android and iOS apps? Be sure to partner with a VoIP service provider that offers solutions that fit your specific needs.

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