What Is a VoIP Phone & How Does It Work?

Updated Aug 7, 2023.
What Is a VoIP Phone & How Does It Work

There is so much interest in Voice over Internet Protocol (VoIP) usage as business telephones in recent times. VoIP phones are breaking the grounds for modern business phone systems.

More businesses today are switching over from using traditional phone systems to virtual phone systems in a bid to reduce phone costs and enjoy other benefits.

In this guide, you will learn what a VOIP phone system is, types of VOIP phones, how VOIP phones work, a step-by-step guide for setting up a VOIP phone, the benefits of a VOIP phone system, VOIP phone features, and how to choose the right business or conference VOIP phone.

Let’s get started.

What is a VoIP Phone System?

You cannot define what a VoIP phone system is, without first defining what the keyword ‘VOIP’ means first.

VoIP, an abbreviation for Voice over Internet Protocol, is a technology and blend of various protocols that allow you to place and receive calls using the internet. It is also known as IP telephony, internet telephony, or internet calling.

The Session Initiation Protocol (SIP) trunking is the cutting-edge innovation that makes it easy to use and exchange information between different desk phones, conference phones, and VoIP apps. It is an open standard on which VoIP is built.

SIP Trunking in a VoIP Business Phone System
Source: Nextiva

A VoIP phone system is a type of telephone system that allows you to make phone calls through your internet connection instead of a regular analog landline or mobile network. It is a combination of internet protocols and devices that allow you to use the internet instead of regular copper telephone lines to make telephone calls.

With a VoIP phone system, analog voice signals are converted into digital format to be transmitted over a broadband connection. A VoIP server is then used to directly connect calls to other telephone networks.

A VoIP phone system can be either hardware or software-based but only requires an internet connection to be set up and used.

VoIP phones are also known as IP phones and have characteristic features and capabilities not found in traditional analog phones such as video conferencing, call routing, and voicemails.

However, they also possess extra performance requirements as phone calls are placed over the internet instead of a traditional public switched telephone network.

What is a VoIP Phone System
Source: BIRNS

Types of VoIP Phones

There are two types of VoIP phones in the market today: hard phones and softphones. These two types are differentiated on grounds of the devices needed.

1. Hard Phones

Hard Phones are majorly hardware-based VoIP phones that are set up much like traditional phone systems. These hard phones are VoIP-capable desk phones used with a combination of on-premises PBX, VoIP headsets, and other telephony devices.

Operations on these hard phones can either be fully controlled by the company making use of it or the VoIP service provider.

Either way, hard VoIP phones are set up and operated like traditional analog phone systems but, rather than making use of copper lines, communication passes through the internet.

Some of the characteristic features that a hard VoIP phone offers are limited direct voice calls, conference voice calls, and access to voicemail. Communication is also facilitated using handsets, headsets, Bluetooth, and speakerphones.

2. Softphones

Softphones give you all the benefits you can possibly enjoy from using VoIP in your communication system. Soft VoIP phones are basically virtual phones that are accessed through apps installed on mobile phones, tablets, or computers.

An application software is installed on any internet-capable device and VoIP calls can be made through this app from anywhere and at any time.

Softphones are also accompanied by cloud private branch exchange (PBX) systems that also allow you to manage your communications from anywhere you have access to the internet.

With this, it is apparent that soft VoIP phones give you much-needed flexibility and mobility, especially in today's fast-paced world.

How VoIP Phones Work

VoIP phones make use of less hardware and offer features and benefits exceeding those offered by traditional phones. However, for them to work, there are three important components: VoIP, a VoIP phone number, and a PBX (private branch exchange).

VoIP serves as the telephony part of a virtual phone system. It is the connection channel from the caller's end to the receiver's end.

With VoIP, voice or audio data is converted to packets, transmitted through an internet protocol, and converted back to voice data when it gets to the receiver's end. This process reciprocates itself from the receiver's end also and the simultaneous movement and conversion of data packets translate to real-time communication.

A VoIP phone number refers to one that is not specifically fixed to a single telephone line or device. It can be used to make VoIP calls through apps or the on-premises hard phones installed within a company.

Existing analog telephone numbers can also be used as VoIP numbers and with a business VoIP, a call from a virtual number can be received outside the VoIP app. A business VoIP allows you to communicate with individuals through a VoIP app and direct analog telephone lines.

A PBX is a telephone technology used to route calls. An on-premises PBX system is purchased by a company and situated in an office for directly controlled call routing.

A cloud PBX, on the other hand, allows you to take care of all the call routing and call management rules already set by you through apps hosted in cloud servers. You have extra functionality with cloud PBX and you can also delegate the management and control of your communications to your PBX provider.

How does a VoIP phone use these components? When a call is received on a VoIP phone number, a PBX helps you route the call to the appropriate receiving phone line or lines. A business VoIP provider allows phone calls to be placed directly to the virtual and analog lines of receivers.

How VoIP Phones Work
Source: Calncall

VoIP Phone Setup is Easy

After determining what you need from a VoIP phone system and the provider that offers you the best complementary features, the next step is to set up your VoIP phones.

Setting up a VoIP phone is as easy as setting up “plug and play” devices and systems. However, this differs from provider to provider. The process of setting up a hard VoIP phone is different from a soft VoIP phone.

For a hard VoIP phone, the 8-pin RJ-45 jacks at the back of computers are plugged in. These ports are used rather than the 6-pin RJ-11 phone connectors dedicated to analog phones.

Without technical knowledge, these connector ports are generally known as ‘phone jacks’ or ‘ethernet ports. But in reality, they serve extra purposes in communications systems.

The ease of VoIP connections, however, depends on whether a Power over Ethernet (PoE) is part of the desk phone's components. A PoE capability allows a CAT5e or CAT6 cable to act as both the power and ethernet cable.

Without a PoE:

  • Plug the AC adapter of the VoIP phone into an outlet to power it on.
  • Use a CAT5e or CAT6 ethernet cable to connect the phone to a switch or router, and
  • Just wait for the phone to initialize and connect to your VoIP provider.

With a PoE:

  • Connect the VoIP phone to a PoE-enabled switch or router.
  • The phone turns on and you have to wait for it to establish a connection with your VoIP provider.

Today, however, most hard VoIP phones only need an internet connection that can be established through Wi-Fi. Cables may not be needed all the time for them to work but they need to be charged.

Soft VoIP phones only require an app to be installed and registered on the various internet-capable devices to be used. A connection can then be established with the provider.

Benefits of a VoIP Phone System

We can't talk about a VoIP phone system without consciously or subconsciously mentioning the benefits it proffers. Some of the benefits derived from using a VoIP phone include cost-effective infrastructure, delegate control to SaaS providers, flexibility, portability, and scalability.

1. Cost-Effective Infrastructure

A VoIP phone allows you to use your existing internet connection to establish end-to-end communications. This is unlike traditional business phones which require extra dedicated desk phones and copper wiring.

Using a soft VoIP phone allows you to enjoy this benefit to the fullest. You only need the internet-capable devices you already own that give you reliable access to the internet. Expensive copper cables are boycotted.

With VoIP, your main costs are only your monthly charges from your VoIP provider and charges for internet access from your internet service provider.

Making a call over traditional phone lines can be very expensive as they charge for each minute of call. VoIP providers charge monthly and typically give you unlimited call minutes to communicate within and outside your organization.

2. Delegate Control to SaaS Providers

SaaS providers help you manage the software systems they provide to you. With VoIP phones, you can delegate the management and control of your phone system to your provider and focus on your other business activities.

Traditional systems require on-premises PBX to work and this system can only be managed by an in-house employee.

3. Flexibility

With VoIP phones, you link calls to user accounts rather than a dedicated analog phone number. This allows you to easily connect other lines to this account for easy rerouting of calls.

4. Portability

Admittedly, hard VoIP phones don't give you more mobility than regular analog phone systems. Soft VoIP phones, on the other hand, offer you this and more.

Soft VoIP phones require only internet-capable devices. You can make and receive calls from anywhere and at any time. Your communications system is as portable as you are and you are never hindered by it.

Cloud PBX is characteristic of soft VoIP phones. This means that you do not just make and receive calls from anywhere, you also get to manage your call routes and advanced features from anywhere.

5. Scalability

Soft VoIP phones offer you very easy scalability when it comes to expanding your office phone systems. More virtual phone lines can easily be added to an account, unlike traditional phone systems that require you to buy extra desk phones, cables, and devices.

The benefits of VoIP Technology
Source: 3CX

VoIP Phone Features

VoIP phone features vary from provider to provider. Nonetheless, there are general features that represent general functionalities common with all VoIP phones. Hard VoIP phones have different features compared to soft VoIP phones.

Hard VoIP Phone Features

For hard VoIP phones, some of the general features include:

  • Line Buttons that light up and indicate that there is a call waiting or parked on a line. The number of line buttons on a VoIP phone usually indicates the maximum number of lines that can be linked and available on it. These buttons should also be programmable with speed dial access to quickly make calls by just pressing a button.
  • Reversible Tab is a component that allows you to rest the VoIP phone on a wall without the handset falling off.
  • Speaker is one of the most important parts of a VoIP phone. It is where the sound comes from and a high-quality VoIP phone speaker is important for effective communication.
  • Back Key allows you to return to the previous menu in the VoIP user interface.
  • Transfer Key allows you to send the caller to another user’s phone. It serves as a means to manually route a call to other lines connected to the account. This functionality is, however, different from call forwarding. It is used after someone has answered the phone call. There are two types of call transfer functionality provided by this transfer key; warm transfer and blind transfer. A warm transfer allows you to keep the caller on hold while you check the availability of the destination recipient it is to be transferred to. The blind transfer involves you transferring a caller to the recipient without first confirming availability.
  • Message Button gives you immediate access to your waiting voicemail with just a click of the button.
  • Hold Button performs the familiar function of keeping callers on hold.
  • Volume Keys increase and decrease the volume of calls. Up, for louder volume and down, for lower volume.
  • Dial Pad is the bunch of numbers on a VoIP phone used for dialing. It typically comes in the standard traditional phone number arrangement.
  • Mute Key or Button allows you to mute the call from your side so that the caller on the receiving end is not able to hear what you say. This is a useful feature if you need to make confidential comments or avoid the caller from hearing unusual interrupting sounds.
  • Speakerphone Key allows you to put the call on a loudspeaker instead of using the handheld phone component. With this, your hands are free and you get to multitask without being hindered.
  • Headset Key allows you to switch to the handset when it is equipped into the VoIP phone system.
  • USB Port exists for you to plug in compatible USB devices like a USB headset or a flash drive
  • Home Key or Button allows you to immediately go to the home page on the VoIP phone user interface. This is useful as pressing the back button repeatedly can serve as an unnecessary extra step or prove annoying sometimes.
  • Navigation Buttons serve as directional buttons that allow you to navigate the VoIP phone interface. The direction you press corresponds to the on-screen menu selector movement. These buttons can also be customized with shortcuts. The up or down can serve as shortcuts to your contacts while the left or right may serve as shortcuts to other interfaces like where you choose a ring-type for each contact, among others.
  • Soft Key is a button on the VoIP phone that has a very wide range of functionality connected to it. The functionality it offers depends on what you are doing on the phone and what the display tells you it can do. Some of the functions which a soft key offers you include call transfer, activating conference calling, putting a call on hold, call redial, speed dial, call pickup, call forward activate/deactivate, do not disturb mode, displaying the last call received, and displaying missed calls. These are only a few of the dynamic functions soft keys offer you and they depend on the VoIP phone provider you use. They are also programmable.
  • Security Hole enables you to attach or lock the VoIP phone to a desk through a security cable that may come with it.
  • Screen is the part of the VoIP phone where the user interface is presented. It varies between providers and the model of VoIP phone you purchase. The screen usually presents all the information you need and this includes important details like time, date, soft keys function, global messaging, parked calls, contact, and every other thing you need to see. There are a lot of high-end VoIP phones that employ touch screens like smartphones. Touch screens can replace some or all the buttons on the VoIP phone and offer you easier navigation of the user interface.
  • Indicator is a simple light that lets you know that you have unread messages or emails.

Soft VoIP Phone Features

The physical features of soft VoIP phones are dependent on the device used: either mobile phones, tablets, computers, or any other internet-capable device. The functionalities provided by the softphones are also dependent on how the VoIP application is designed.

However, some of the more common features and functionalities you get to enjoy with soft VoIP phones include:

  • Video calling capabilities
  • Team chat options like social media message groups
  • Direct text messaging options
  • Online faxing
  • A voicemail transcription option that allows you to automatically convert voicemail audio to text.
  • Logs of all your calls
  • Easy conference call access
  • Auto-attendant functionality
  • Mobile and local number portability that enables you to keep your current number while transferring to another telephone provider
  • Call recording options call analytics for extended call insights.
  • Integration with other external software like CRM software and social media software programs, among others.
8 Best VoIP Phone Features Your VoIP System Must Have
Source: VoIPTech

How to Choose the Right Business or Conference VoIP Phone

With a lot of VoIP phone brands in the market today, choosing a VoIP phone is a difficult task to deal with. A bad choice can have dastardly effects on your communications system and overall business.

There are regular business VoIP phones and there are conference VoIP phones. They offer different options for your communication system and, therefore, have different points of reference. So what are the most important factors to look out for while choosing these VoIP phones?

Business VoIP Phones

1. Determining Your Business Needs

Just as every business has peculiar needs, VoIP phones have specific additional features that they offer other than the basic phone calling features. Get to know what your business communication needs, compare this with what a VoIP phone offers you, and make a selection accordingly.

2. Check Out The Brand

In the market, there are names of providers that are more popular than others. A popular reputation can be an indication of either good services or bad services. You should definitely choose a provider with a good reputation.

Taking note of user reviews on different online platforms can help you pinpoint a VoIP service provider with a good reputation and make an appropriate choice. Nonetheless, there are some popular brands well known for good services.

Poly offers you effective team engagement options while Cisco offers you one of the best business networks and hardware-based VoIP infrastructure. Panasonic offers high-quality and reliable electronic devices while VTech has the largest offering of cordless VoIP telephones selections.

Consider these and make appropriate choices relating to the provider that fits your business needs the most.

3. Check For The Number Of Lines

Look out for how many lines the VoIP phones offered to you have. Relate this to what your business really needs.

4. Look Out For A PoE (Power over Ethernet)

A PoE allows you to easily set up your hard VoIP phones and keeps your infrastructure as minimalistic as possible. Having this capability is great for any phone system.

5. Scalability Is Important

The future is important for any growing business and always needs to be considered. VoIP phones generally have the characteristic of scalability but the level of scalability differs. Consider how fast you intend to grow, how much flexibility and space for scalability a VoIP provider offers you.

Conference VoIP Phones

A conference phone differs from a regular VoIP phone as it is optimized to send and receive voice calls from multiple telephone lines and maintain communication in a group setting. Conference phones have an omnidirectional microphone configuration, meaning voice inputs into the microphone are split and sent through different channels.

Conference phones also offer the basic functionalities of regular VoIP phones. However, due to their different purpose and functionality, there is one additional functionality to consider, cordless phones.

Cordless hard VoIP phones offer you a certain level of mobility and comfort in the office or area of operation. Conference calls involve very interactive sessions and you need comfort and mobility to properly contribute to the discussion.

A VoIP phone with Bluetooth is important to your communications system as it allows for even more mobility within the office. Other devices like headsets can be connected to and used seamlessly.

VoIP Phone System FAQ

Why Would Somebody Use A VoIP Phone?

The plain reason you should use a VoIP phone is that it offers you multiple benefits over a traditional analog phone system.

VoIP phones are cost-effective alternatives to regular desk phones and are way easier to set up. The cost-effectiveness is even more apparent with the use of soft VoIP phones.

You enjoy extended and seamless scalability for your future growth, as well as advanced call features. These advanced features include voicemail transcription, call recording, advanced analytics, reporting, audio and video conferencing, instant text messaging, and real-time call center monitoring, among a whole lot of others.

This is not all. VoIP phones, especially soft VoIP phones, offer you more mobility, reliability, integrations, and seamless management of your communication system.

Can I Use A VoIP Phone As A Regular Phone?

Yes, VoIP phones can be used just like regular phones. Business VoIP allows users to place calls directly to the analog and mobile phone numbers of receivers.

Hard VoIP phones are just like traditional phone systems. The only difference is that they make use of the internet as a communication channel rather than analog telephone cables.

Soft VoIP phones, on the other hand, have totally different infrastructures. Nonetheless, calls can be placed and received just like with regular mobile networks.

Are VoIP Phone Calls Free?

Yes, VoIP phone calls can be placed for free but this does not apply generally. A lot of VoIP providers such as Grasshopper, RingCentral, and RingCentral alternatives allow users to place phone calls for free. However, when you are allowed to do this, the features you have access to are typically limited.

When running a business, you want to have every important tool at your disposal. A free VoIP call sounds nice but how does it profit your business communications if your phone system is not up to the task or needs of your business?

Charges accrued from the use of VoIP phones are vastly cheaper than a traditional analog phone. You get to save more than 80% of costs with VoIP phones. 

With this, even though proper VoIP capabilities are not offered for free, they are cheap enough for you to cost-effectively run your business communications.

Do I Need A Special Phone For VoIP Calls?

No, you don't need a special phone to make and receive VoIP calls. Soft VoIP phones involve the installation of apps on mobile devices, tablets, or computers and only require an internet connection to work. No special device is needed at all.

However, hard VoIP phones need special phones to work. Desk phones are provided by the VoIP provider you choose and are set up with configurations provided by this service provider.

Which VoIP Phone System Should I Pick?

Choosing the right VoIP phone system depends on the needs of your business. VoIP phone systems give you access to features such as call queues, automated attendants, and computer integration which were only available to large corporations because of cost.

Although there are so many VoIP phone systems in the market, they all have their differences. Picking a VoIP phone system that works best for your business needs requires you to take a closer look at its functionalities.

RingCentral is the best VoIP phone system for small businesses looking for a complete solution. Ooma is the best VoIP phone system that offers high scalability for small businesses. Nextiva is the best VoIP phone system that provides communication, collaboration, and CRM tools for medium-sized businesses.

Grasshopper is the best VoIP phone system for small to medium-sized businesses looking for highly mobile options. Vonage is the best VoIP phone system that offers high-quality services even with low internet connectivity.

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Anastasia Belyh

Editor at FounderJar

Anastasia has been a professional blogger and researcher since 2014. She loves to perform in-depth software reviews to help software buyers make informed decisions when choosing project management software, CRM tools, website builders, and everything around growing a startup business.

Anastasia worked in management consulting and tech startups, so she has lots of experience in helping professionals choosing the right business software.