Written by Chris Price Updated on 12 July 2023 On this page How Does VoIP Work? VoIP Growth VoIP Hosting Options VoIP Handset Options 5 VoIP Benefits VoIP Drawbacks VoIP and Unified Communications Expand For years, landline telephones have worked by sending analogue audio signals over copper wire using what’s called a PSTN (Public Switched Telephone Network) – also known as a POTS (Plain Old Telephone Service).First of all this was done using a standard wired handset which plugged directly into a wall socket. Then from the early 1990s using a cordless handset transmitting to a base plugged into the mains power supply. Picture the cast of TV series Friends speaking into bulky handhelds with large built-in aerials! How does VoIP work?However, VoIP (Voice Over Internet Protocol), also called IP or broadband telephony, is a completely different technology. It uses a broadband internet connection to transmit voice data using digital packets. The process comprises the following steps:Analogue audio from the person talking is converted into digital data using a codec. This is a software program that compresses and decompresses audio data.The digital data is then sent over the internet in the form of small packets.Packets are routed through the internet to the recipient's phone.The recipient's phone then converts the digital data back into an analogue audio signal. VoIP growthAccording to a recent report by Spherical Insights (May 2023), the global VoIP market was valued at $40.2 billion in 2022 and is expected to reach $108.5 billion by 2032 – an annual growth rate of 10.4%One of the main reasons for the growth of VoIP is lower pricing. Some commentators estimate it is possible for businesses to save over 50% by switching from PSTN telephony to VoIP.Rather than having a separate telephone network as with a traditional set-up, VoIP allows both voice and data communications to be run over a single network. This can significantly reduce infrastructure costs. VoIP hosting optionsThere are basically two main options when it comes to hosting VoIP.Cloud-based VoIPAllows businesses to use third-party telecoms providers to host their VoIP telephone network for them. This can be a more cost-effective solution especially for smaller businesses or those looking for greater flexibility. Businesses are usually charged a monthly subscription for the system.Private VoIPHere the telephony system is located within the business itself. This can help achieve greater control over costs well as ensure higher levels of privacy and security of communications traffic. However, it generally requires much greater upfront investment for the onsite infrastructure. VoIP handset optionsVoIP systems can be implemented in a number of different ways. These include the following:Dedicated VoIP phoneConnects directly to the IP network using technologies such as wired Ethernet or WiFi. Typically, VoIP phones look like standard analogue business phone lines.Analogue telephone adaptor (ATA)A device that plugs into a wireless router or cable modem that allows the user to connect an analogue phone (or even fax machine) to the digital VoIP network.Softphone applicationsYou can now access a VoIP service via any device fitted with microphone and speaker, including smartphone, laptop computer or tablet. Applications typically display a dial pad and display field to the user which can be accessed via a computer mouse, stylus or finger. 5 VoIP benefitsCost savingsAs already outlined, VoIP is a much more cost-effective way to make phone calls than traditional landlines. This is because VoIP calls are routed over the internet – typically cheaper than the traditional phone network. Many VoIP providers also offer unlimited calling plans, which can save even more money.Greater flexibilityVoIP calls can be made from anywhere with an internet connection, so you are not tied to a desk phone. Ideal for remote workers, the technology allows users to make/take calls at home, on the road, or even a coffee shop. VoIP makes it easy to collaborate with colleagues who are in different locations.Advanced featuresVoIP systems offer a wide range of features to improve your business communications, such as call forwarding, voicemail, and conferencing. These features can in turn help to save time and drive business efficiency.ScalabilityCloud-based VoIP systems are particularly easy to scale up or down as your business needs change. This means that you can start with a small system and then add more users or features as your business grows or reduce handsets/features as business contracts.Improved call qualityVoIP calls often have clearer sound quality than landline calls. This is because VoIP calls are digital, which means that they aren’t susceptible to certain types of interference from other analogue devices.For a more detailed look at the what you can get out of a VoIP system, check out our article, The Benefits of VoIP Technology. VoIP drawbacksWhile the benefits of VoIP greatly outweigh any negatives, there are some potential issues that users should be aware of:Internet connection requirements: VoIP calls rely on an internet connection, so if that connection is unstable or slow you may experience problems with call quality.Security: VoIP calls are transmitted over the internet, which means that they are susceptible to cybersecurity risks. However, it is possible to take security measures to protect VoIP calls, such as using encryption.Emergency calls: VoIP calls are not tracked by the traditional phone network, so emergency services may not be able to locate you if you make an emergency call using VoIP.Call quality: As with analogue calls, it is possible to experience a delay between when you speak and when the other person hears you, especially if making calls to other countries. This is known as latency. VoIP and Unified CommunicationsVoIP is increasingly used within businesses as part of an integrated communications strategy, often known as UC (Unified Communications).This is designed to provide businesses with a consistent user interface and experience across multiple devices and platforms. These include:Internet Telephony (VoIP)Instant MessagingVideo ConferencingScreen sharingSpeech recognitionVoicemailUnified Communications may also integrate a number of different technologies. One of these is Mobile IP, which allows users to keep their phone calls, data sessions and voicemail alive even when moving from one network to another.To understand how UC can best be applied it is best to imagine a scenario where a customer calls about a product after business hours and decides to leave a voicemail message.After they hang up, software that powers the phone system transcribes the message into digital form and emails it to a member of the marketing team. The marketing manager receives the message, in email form, on their mobile device and is then able to call the client back.In this scenario three different systems – voicemail, email, and VoIP – have all combined to optimise business communications. Written by: Chris Price Chris has been a freelance technology journalist since the 1990s. In addition to editing two consumer tech blogs, TechDigest.tv and ShinyShiny.tv, he also regularly contributes tech/business articles to various publications including The Daily Telegraph, Tech Radar, IFSEC Global and AI Business. A passionate outdoor swimmer, Chris is also a qualified lifeguard.