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).

As the name suggests, it is designed to transmit voice communications (in other words, phone calls) over the internet.

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

Cost Savings

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.

Scalability

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!

Super-portability

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

As long as you have an adequate internet connection, routers and cables, you can easily avoid issues like lost audio and latency (delays).

Emergency Support

Because VoIP calling happens over the internet, it’s almost impossible to trace the locations of callers.

  • Fixed - 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.
  • Non-fixed - doesn't need to be associated with a physical location and is therefore easily obtainable by anyone from outside the country.

Required Internet Connection

VoIP carries voice calls (as well as texts, faxes, video chats, and other types of data) across the internet. This means that for your VoIP phone service to function, you will need a reliable, high-bandwidth Internet connection.

Data Security

You’ve probably seen some news about major corporations’ emails being hacked, so you likely have an idea that data traversing the internet is not necessarily secure.

If you choose the wrong provider, your company’s data will definitely suffer from a lack of security.

How does voice over IP work?

VoIP takes a standard analog phone call—the type most homes and businesses still make today over the Public Switched Telephone Network (PSTN)—and converts that analog call into digital packets. Then, rather than traveling over the standard phone network, those packets are transmitted across the internet to the other parties on the call. Voice packets of a VoIP calls travel over the internet just like any other type of digital data, such as an email message or a file being uploaded to your favorite cloud storage app.

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).

Illustration showing how coding and decoding works

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:

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.

Other VoIP Protocols: Transmission Control Protocol (TCP) &  User Datagram Protocol (UDP)

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).

How do you make a VoIP phone call?

VoIP-to-VoIP calls

When you make a call, the audio data is encapsulated or compressed into small data packets. These packets travel through different networks until they reach their destination (the IP phone or computer of the person being called), where the packets are “unpacked” back into audio form. This goes back and forth in real time.

One great thing about VoIP is that there’s no one way to make a call. Legacy phone systems only let you communicate from phone to phone. On the other hand, VoIP lets you call from:

Computer to computer

The process is pretty simple:

  • Download a VoIP-enabled program and install it on your computer.
  • Create an account.

That’s all you need to make a computer-to-computer call, which is free (as long as the person you’re calling is also using the same application). This setup is great for personal use but could be a problem for businesses as it typically lacks security protocols and falls short when it comes to sound quality and integrating with other tools.

Computer to phone

Here’s how you do it:

  • Have your VoIP provider enable out-of-network calls (not free, but still cheaper than services from traditional phone companies).
  • Connect to a landline phone using a computer running a VoIP-enabled program.

And that’s it! Businesses that regularly make calls to areas without a strong internet connection would benefit most from a computer-to-phone option.

Mobile apps

This option is great for remote workers:

  • Download a mobile version of a VoIP-enabled program and install it on your device. Create an account.

If you have field or remote workers, it’s probably more convenient (and will make things run more smoothly) if you have mobile apps.

Landline phones connected to an ATA

How to do it:

  • Plug your phone cable into the ATA.
  • Start making VoIP calls by picking up the handset and dialing.

Some companies use an ATA to get a feel for VoIP first before going all in.

VoIP to PSTN (and vice-versa)

When you make a call through IP to a landline, the digital audio goes through the same process as a VoIP-to-VoIP call. The difference is that the unencapsulated audio data passes through what’s called a VoIP gateway, which in turn converts digital audio to analog.

VoIP phone system: Application of VoIP to Business

What is a VoIP phone system?

While VoIP is responsible for basic phone functions, most VoIP providers add PBX capabilities to the equation in order to provide businesses with a system that can manage all their incoming calls. This solution is commonly referred to as VoIP phone systems.

A VoIP phone system allows you to integrate more of your company’s business communications into a single solution, rather than leaving you to manage many different communication tools and vendors—which don’t always work well together.

Features of a VoIP phone system

Most small- and medium-sized businesses believe that they do not need a professional business phone system. More often than not, they think their operations are too small for such an investment.

However, a professional VoIP phone system might just be what they need to take their business to the next level. By getting a VoIP phone system, your business gets the following:

  • A virtual telephone number that users can access even outside the office
  • An auto attendant that promptly answers all phone calls and routes them to the right person or department (no more missed calls!)
  • A system that reduces the need to pay for expensive mobile phone plans because workers can use VoIP to make calls instead
  • Advanced communications features that can increase efficiency and productivity
  • Advanced team collaboration tools like online meetings, team messaging

RingCentral: The Best VoIP Provider

A virtual phone system is mobile and desktop

VoIP systems let you free your staff from being tied to their desks because their office phone numbers will no longer be limited to any particular phone. For example, with the RingCentral desktop app, you can give your team the ability to make business calls on their desktop or laptop using nothing but an internet connection, a microphone and speaker setup or headset, and the RingCentral app itself.

In addition to full softphone capability, the RingCentral desktop app gives your staff a single interface for other communication services they likely use every day—such as team messaging and collaboration, file sharing, task management, and online meetings.

With the RingCentral mobile app, your team can also enjoy all of this unified communications functionality—VoIP phone calls, texting, conferencing, online meetings, even team messaging and collaboration—from a single app on their smartphones.

In other words, a VoIP system acts as a full-scale cloud PBX (or even more than that in the case of RingCentral), allowing your team to easily manage calls and other communications features, including auto attendants with recorded greetings, advanced call routing and forwarding services, virtual voicemail, and even online faxing.

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VoIP FAQs

A VoIP phone looks like a standard desktop business phone but with an Ethernet connector and/or Wi-Fi capability rather than having a connector to a standard phone port. This makes it so that it can be connected to a router in your home or office. But it must be noted that these phones need to be configured to work with your VoIP service.
You can use VoIP software installed on your mobile phone to turn that device into your VoIP phone. This means you can use your personal mobile phone, for example, to place or receive calls (or even text messages) using your business phone number simply by activating your VoIP provider’s app on that mobile phone. To callers on the other end, it will always appear that you are on your “business phone” because that is the number they will see.
VoIP works with computers (desktops, laptops, tablets) similar to the way it works with mobile phones. With your VoIP provider’s software installed, you can turn a computer into a phone for the purposes of taking and making calls using your VoIP business phone number. To place or receive a VoIP call on your computer, you can use the VoIP program’s phone keypad and other features alongside either the computer’s built-in microphone or a headset.
When you switch from your existing phone provider to VoIP service like RingCentral, you can “port” your existing numbers over to your new service, no matter how many phone numbers your business has. You can keep your local numbers, toll-free numbers, landline and wireless numbers, and even international numbers in many countries. You do not need to lose the business phone numbers your employees, customers, vendors, and partners are accustomed to using.
Yes. With the RingCentral MVP VoIP service, you can manage all of your inbound faxes by internet fax (which we will convert to PDF and then send to your email inbox). But you can also use your traditional fax machine to send faxes with VoIP using your RingCentral service. To do so, you just need to connect your fax machine to a VoIP ATA and then connect the ATA to your internet router.
Note: Sending faxes the traditional way using your RingCentral service will require you to buy one RingCentral MVP line for the fax machine itself.
One of the things that makes VoIP so easy on the budget is the fact that it doesn't need you to invest in expensive hardware (like physical cables and an on-premise PBX). But that doesn’t mean you don’t need hardware at all! Here’s a closer look at some important equipment a business might need for Voice over IP.
A business router
The VoIP router is responsible for moving data packets between devices in an IP network. Since these packets take on different paths (see diagram A), the router assigns a local IP address to every device to make sure they don’t get lost or intercepted (whoever intercepts the digital data can also listen to them).
Institutions that store personal data and other sensitive information like healthcare providers, government agencies, and law firms, are extra vulnerable to cyberattacks. Thankfully, routers can identify suspicious behavior since they have built-in encryption that protects the data within your network.
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.
VoIP handsets
When someone says “handset”, you’ll probably think of one of two things: the part of the landline phone you pick up and hold close to your ear and mouth during a call (it’s connected by wire to the unit), or a mobile phone.
VoIP-enabled handsets allow you to make and receive calls, much like regular phones (but with help from the internet instead of copper lines). There are many kinds of VoIP phones available in the market depending on what you need to use it for—for example, conference phones and USB phones.
Computers and mobile devices
Apart from handsets, you can also use computers and mobile devices like smartphones and tablets to make and receive VoIP calls. And as long as they have VoIP software installed, you can use them to explore other VoIP capabilities like video conferencing and online fax.
Headset
Headsets with microphones let you hear and send voice audio from your computer. This is often used with a computer running VoIP software (like RingCentral).
Analog telephone adapter (ATA)
Yes, you can still place calls over the internet using your existing landline phone!
An ATA makes that possible. This device connects your landline phone system to an IP network, automatically converting your voice into data packets that can travel through the internet.
Sounds like a money saver, right? It can be, sure—after all, this means you won’t have to replace all your phones. One thing to keep in mind, though, is that an ATA doesn’t give you advanced features the way a VoIP phone does. Without a touchscreen display, for example, you won't have easy access to directories and call logs directly on your phone.
VoIP phones come in two forms: hard phones and softphones. See which one would work best for your business:
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).
Landline phone systems rely on PSTN (aka traditional circuit-switched phone networks) to make calls happen. That’s not the case with VoIP, which uses packet-switched networks.
  • PSTN (circuit switching) - When person A calls person B, the network tries to find a connection from different circuits (sort of like paths or trails with gates). Once a connection is established, the conversation takes place and the circuit stays open until the call is finished.
  • VoIP (packet switching) - When person A calls person B, person A’s voice signals are broken down into data packets (as explained above). Each packet contains the source and destination addresses (where the message comes from and where it’s going). This is important, since the packets may take different routes. When they arrive, the destination device (phone or computer) reassembles them into person A’s original voice signals. The same thing happens to person B’s voice signals as the conversation goes on.
A VoIP phone service is a type of telecommunications service that uses the internet for different forms of communication like voice calls, fax, SMS, email, voice mail, and web conferencing (slightly different from having the software). This gives businesses the mobility and flexibility that legacy phone systems lack and helps them communicate and collaborate better.
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.

More resources about VoIP and Internet Phone services

VoIP Main (Software)

VoIP Provider

VoIP Network

VoIP Phone Systems

VoIP Caller

How Virtual Phone Call Works

Internet Phone Service

Virtual Phone Service

Small Business Phone Service

Important details and disclaimers