What is VoIP? The Complete Guide to Voice over IP Calling

Updated Aug 7, 2023.

Businesses rely on smooth and reliable internal and external communications to carry out their daily business operations effectively. Ever since Alexander Graham Bell invented the telephone on March 10, 1876, businesses have bought telephone services as packed offerings defined by the telephone service provider.

High costs of calls, especially international calls, the call quality was not always crystal clear, maintenance cost, cost of equipment, are just some of the flaws of the traditional phone system.

Fast forward to today, and Voice over Internet Protocol (VoIP), a technology that allows people to make phone calls over the internet, is increasingly becoming the standard for corporate communications. The technology, developed in 1995, has evolved over the years to become a more stable and reliable communication solution for businesses.

According to FinancesOnline, there are over 204.8 billion VoIP subscribers worldwide. In this definitive guide, you will learn everything you need to know about its definition, pros and cons, how it works, and tips for selecting the right VoIP provider.

What is VoIP?

VoIP stands for Voice over Internet Protocol. It refers to the method of transmitting voice (phone calls) and multimedia content over a broadband internet connection rather than analog phone lines.

Many businesses use VoIP as an alternative to traditional phones. If you run a business with call centers, make and receive a high volume of calls, and have remote employees, VoIP solution is a low-cost and reliable phone alternative. VoIP phones have replaced obsolete landlines in many offices.

Have you heard of the IP (Internet Protocol) address? It is the unique way different computers communicate with one another on the internet.

The concept of VoIP is not a new development. Originally launched on the internet in 1995, VoIP has impacted the way we communicate.

Telephone companies have relied extensively on digital lines to provide phone calling services to their customers. The problem with the local telephone companies is that they are not cost-effective, especially when you want to handle an unlimited number of calls.

VoIP is a cost-effective way for businesses to make an unlimited number of calls at the fraction of the cost it would cost with traditional telephone companies.

All you need to use a VoIP service is an internet connection. Once you have an active connection, you can easily call anyone without needing to use your local phone service.

VoIP makes it possible for users to make voice calls from your computer, mobile devices, and smartphones. There are also special VoIP phones and webRTC-enabled browsers that support this service.

Calls are one of the top services offered by VoIP service providers but they are not the only services they offer. It also routes outgoing and incoming calls through existing telephone networks.

Other features offered by VoIP service providers include call recording, custom caller ID, or voicemail to email. Organizations use it to unify their communications. It is perfect for individuals and businesses as it contains some features not found on common phone services such as voicemail to email.

How Does VoIP Work?

VoIP (Voice over Internal Protocol) is based on the Internet Protocol (IP) which is a crucial building block of the internet. It is a groundbreaking innovation that makes communication easier compared to the century-old telecommunications system used by local telephone services.

Phone calls use small data packets to exchange conversations between the caller and the receiver. VoIP instead uses the internet to facilitate the exchange of these data packets. The internet can send data packets to any location in the world within microseconds.

A VoIP phone system transmits these data packets between your phone and a VoIP provider. It is this system that facilitates calls you make to other phones or another telephone company on the internet. Other useful functions of VoIP include voicemail, call recording, call forwarding, etc.

The whole explanation between the workings of VoIP can be summarized in four steps:

  • Your VoIP device connects to your router or switch in your Local Area Network (LAN).
  • You dial the telephone number you want to call on your IP phone, and your IP phone sends signals to your VoIP service provider, prompting it to call the other party on your behalf.
  • The VoIP service provider sets up the call and exchanges data packets with the receiver from your IP phone.
  • Your VoIP device breaks and converts these data packets or digital signals into sounds you can easily hear and understand.
VoIP Working Process
Source: Wpbeginner

VoIP bypasses the telephone company, connecting directly to the receiver’s device. It works with a broadband internet connection and an upgrade from the traditional analog phone system.

Two decades ago, VoIP was just as expensive or even more expensive than using a telephone company. You needed to purchase expensive equipment to use the service.

With multiple developments and breakthrough innovations over the years, VoIP is a cost-effective way for businesses to make unlimited phone calls at a low price. One of such cutting-edge innovations is the Session Initiation Protocol (SIP), an open standard on which VoIP is built.

SIP makes it easy to make use of and exchange information between different desk phones, VoIP apps, and conference phones. Other VoIP features like conferencing, call routing, and voicemail are made possible and accessible by cloud-based PBXs.

VoIP functions as a full-service phone company but gives you more freedom, features, and lower costs. With a broadband internet connection (DSL, cable, or fiber), you can use and enjoy VoIP services.

Voice over internet protocol (VoIP) market
Source: Gminsights

Pros and Cons of Voice Over IP

VoIP like your regular telephone service has its pros and cons. Before using VoIP to handle your telephone calls, you must know what you are getting into.

Pros of Voice Over IP

Benefits of VoIP
Source: Yeastar

1. Lower Cost

VoIP helps businesses to reduce their phone bills substantially, saving money that can be utilized for other purposes. According to Nextiva, VoIP lowered its users’ phone bills by over 60%.

2. High-Quality Sound

The call quality of VoIP is near excellent, it is free from the occasional muffled or fuzzy sounds you get from your regular telephone services. High-speed fiber-optic lines guarantee you much clearer sounds.

3. Advanced Features

VoIP is rich in premium and advanced features that phone services lack. Some of these features include call recording, auto attendants, and call queues. These features help businesses efficiently manage, record, and make the most of their calls.

4. Remote-Ready

One of the best benefits of VoIP is that it allows you to use your phone service anywhere. Businesses use VoIP to communicate with their remote employees. There is no need for any technical support, you can use VoIP service whenever you work (work from home or in a distant location).

5. Call Anyone Worldwide

One glaring discomfort or disadvantage of traditional telephone companies is the alarmingly high charges for international long-distance calls. With VoIP, you can call anyone worldwide with very low charges.

For example, you can call Mexico as low as $0.04 per minute and the United Kingdom for as low as $0.01 per minute from the United States.

VoIP remains one of the most cost-effective ways to make international long-distance calls without attracting high rates.

6. Improved Scalability and Flexibility

VoIP makes it easier for businesses to grow and scale without having to expand their costs. Unlike traditional phone services that require you to purchase expensive equipment for your calling needs, you can add more members to your team without raising phone bills.

VoIP works on any smartphone, making it flexible for making and receiving calls from any location. Businesses save space such as desk space that usually occupies the landline and money.

Cons of Voice Over IP

1. High-Speed Internet Connection

You know that VoIP relies on the internet to carry out its functions. However, it will not work effectively with any type of internet connection. It has to be a high-speed internet connection. Slow internet connection means rubbish call quality.

Dial-up or satellite-based internet connections do not work effectively for VoIP services. You need an internet connection speed of at least 100 kbps (0.1 Mbps) per phone line.

2. Emergency Services Limitation

If you want to call an emergency number such as 911 from our VoIP device, you have to communicate with the operator about your actual location. By default, VoIP systems such as your mailing address to public safety operators to address your emergency.

3. Renders Your Analog Phone Obsolete

VoIP does not rely on analog signals thus making analog phones obsolete for its communication. You will need to upgrade outdated phones to use VoIP services effortlessly.

4. Power Outage

Your regular handset functions irrespective of power outrage or not, as long as there is power on the device. Because VoIP relies on the internet, if you get power outrage that switches off your internet connection, you cannot make a VoIP call.

In many offices where they rely on WiFi routers for their internet connection, power outages in the facility can make the internet unavailable. You cannot make a VoIP call without a stable internet connection.

5. Need to Train Staff on the VoIP System

If you want to switch to the VoIP system, you face the little obstacle of having to train your staff on how to use the new system.

Although VoIP services are super user-friendly, intuitive, and straightforward to use to a non-user, training your staff is still essential. Training will enable them to use the cloud phone system more efficiently and bridge the communication gap better at a lower cost when you have employees working remotely.

How Much Does VoIP Cost?

After reading so far about VoIP, how it works, and the pros and cons, you may have decided to get yourself one. Who wouldn’t want a cheaper alternative with more features for making and receiving calls?

There is one problem though, you do not have an idea how much it will cost. Different VoIP services have different price plans. However, you will be surprised at how inexpensive VoIP is despite all the mouthwatering capabilities it provides to users.

The short answer to the title ‘How Much Does VoIP Cost” is not too much. According to Tech. co, on average you can expect to pay between $20 to $30 a month per user. The cost per user dramatically reduces as the number of users increases. Businesses that have a large team will pay less per user than businesses with a small team.

Compared to on-premises PBX or other traditional phone systems, you save a lot of money when you use VoIP services.

The $20 to $30 a month per user estimate given above only covers the cost of subscriptions. Suppose a business wants to establish its VoIP service from scratch with no hardware in place, here is what it is likely to cost.

  • Initial costs can be $0 or as high as $50 per line,
  • Monthly costs can be $20 or as high as $45 per line,
  • Getting IP phones to cost $80 to $600 per device,
  • International calls cost 0.01+ per minute depending on the location.
  • Depending on the city, state, and country you reside in, there are taxes and other fees to take into consideration.

For as little as $100, you can get a functional VoIP service for your business (if you are a one-man army).

If you opt for a traditional phone system, here is what your traditional phone system will cost you. These are only the visible costs, there may be other hidden costs you may not know of until it is time to pay up.

  • The installation fee ranges from $50 to $100 per drop.
  • The deposit fee ranges from $100 to $500.
  • The maintenance contract costs $1,000 or more annually.
  • International call rates are as high as $1 per minute.

At the end of the day, if you want to minimize cost, you will still have to pay over $1,000. Which of the two phone options seems like the better deal?

Top VoIP Phone Features to Look For

Before you use a cloud-based VoIP system for your business or other needs, there are some essential features you need to know. It can be annoying to find out you paid long term for a VoIP phone system and it does not have those features you expect to use for your business.

Here are some of the most popular VoIP features that every business owner or manager should check for their availability before making a purchase. Some of these VoIP phone features will be of extreme importance to your business and others not so important.

1. Auto Attendant

The use of an auto attendant to receive incoming calls is a standard practice in the customer service world. If you have called your local service provider or a company that takes customer service seriously, you will hear a prerecorded voice greeting and prompting you on what to do. “Press 1 for Inquiries, Press 2 for Support.”

That pre-recording is an auto attendant in action. The function of an auto-attendant is simple, it helps businesses to direct callers to the right contact. If a call comes outside office hours, you can forward it to your voicemail.

2. Works on Mobile and Desktop Devices

When searching for the right VoIP phone for your company or business, it is essential to pick one that works effectively on mobile and desktop devices.

Most VoIP services are cloud-based communications, which ensures you do not miss a call even when you are not in the office. Some VoIP service providers offer apps compatible with your mobile and desktop devices.

VoIP solutions are essential for bridging the communication gap and allowing workers to work from home. You can use these apps on your mobile devices or your laptop and other desktop devices. Making phone calls, exchanging text messages, and joining conference calls are some of the cool features you can do with a typical VoIP app.

The app is super conducive and easy to use. Depending on your choice, you may opt to use the app with or without a separate desk phone.

3. Call Quality (HD or Nothing Else!)

HD call quality is the standard you should check for and not compromise when choosing a VoIP phone service provider. There are few things more frustrating to you and the caller than to have them repeat themselves again and again because of poor voice quality.

Even if it is going to cost you more to acquire an HD call quality VoIP, pay the extra bucks. Here is why. Poor call quality can disrupt your meetings, make calls last longer than they should, rob off time from you and the caller, and negatively influence the moods of the caller.

HD Voice is the innovative VoIP technology that increases the sound quality of your calls, making it twice as clear as the traditional phone call. With some extra funds, you can get specially designed VoIP headsets and VoIP phones with noise cancellation features. Even when you are making or receiving a long-distance call, the sound quality remains enviably crystal clear.

4. Unified Communications

VoIP uses a simple concept called Unified Communications (UC) to raise your team’s workflow. The system integrates your company’s communication, saving it from the time and resources that would have been burnt using separate apps.

Apart from external communication, the Unified Communications (UC) system makes it easy for employees to communicate with each other and their supervisors. Customers can easily access the appropriate contact persons in the company while employees find it easier to handle calls. One cool feature of UC is its capability to flip calls between devices.

Your employees are more productive with VoIP calls compared to the standard phone calls. They can get work done faster by coordinating instant meetings over the platform. For remote teams, team leaders can easily share the company’s financial goals, KPIs, and OKRs with the rest of the team over the VoIP platform.

Unified Communications (UC) makes it easy for businesses to organize real-time communication with customers and their teams with little or no hiccups.

Here are some key functions you will find within a standard UC platform.

  • Mobile and Desktop Apps
  • Instant Messaging
  • Video Meetings
  • Team Chats
  • Screen Sharing
  • Conference Calling

5. Call Encryption and VoIP Security

Security is one of the key features to look for in a VoIP phone. As a business owner, you do not want your calls getting leaked or tracked by others, especially when discussing “classified” business information.

A lot of valuable information passes through the telephone lines such as credit card information and HR conversations. Protecting these conversations by having secured communication lines is a necessity as they could cost you losses if criminals intercept them.

VoIP technology is safe and secure. Even though its data packets travel through the internet, it has in-built encryption that makes it near impossible for criminals to tap your calls.

Choose a VoIP service provider that utilizes call encryption technologies such as TLS and SRTP. They make call tapping and eavesdropping impossible to accomplish. Check your VoIP provider for credibility and a proven track record of excellent services. Does it meet the industry standard? Is the VOIP provider accredited?

When hunting for a VoIP provider, here is a handy checklist of questions you can ask about the company to help you gauge its suitability for your needs.

  • Is the VoIP provider accredited? ( ISO/IEC 27001, PCI, SOC 2)
  • What is the company’s VoIP service uptime?
  • How many data centers does it have (that are functional)
  • Does it give you access to your real-time call logs?
  • Are they HIPAA compliant IP telephony?

6. Call Recording

Another VoIP feature to look out for is its call recording feature. This single feature can be a huge game-changer for businesses. Recording your phone calls with your customers and staff can help track if your team is handling calls the right way or not.

Leverage your phone system to do these recordings. It is secure and excellent for helping you spot areas where your team can improve. When you record, both parties (customers and employees) will not know you are recording the conversation. You do not need to spend money on extra hardware such as recorders.

Do I Need a VoIP Phone?

Your smartphones will not work effectively with Voice over Internet Protocol. You will need to buy hardware such as a special adapter if you want to use your existing handset or go the route of buying replacement IP phones.

Contrary to what you are thinking right now, the cost of acquiring VoIP desk phones for your office needs is not expensive. If you have a computer and a smartphone close to you at all times, you may not necessarily need to purchase an IP phone.

Do I need a VoIP phone? There are several factors you have to consider before deciding if you need one or not. Here are some of the most important factors to consider.

1. Are You Working from Home?

If you are working remotely, you need to set up a variety of Local Area Network configurations to telecommute with your company effectively. With a desk phone, you do not need any extra configuration as every configuration you need is in the device.

A desk phone is popular among people for its voice call features. You will have an always-on phone which you can use to make calls to customers, communicate with other employees, and your management.

For short-term needs, you don’t need a desk phone, but for key employees, it is an essential appliance to have.

2. Do You Have an Analog Phone That You Do Not Want to Replace?

There are many affordable IP phones that you can purchase to replace your traditional phones. However, if you love your phone or use the best online fax services that have worked for years, you do not need to replace it (if it isn’t broken).

If you fall into the category that does not want to change your long-lasting analog phone, you can use your existing analog phone with VoIP. All you need to make this work is an Analog Telephone Adapter (ATA).

An Analog Telephone Adapter (ATA) works by retrofitting and reconfiguring these older analog devices to send digital data over the internet.

3. Is VoIP Reliable?

Today’s HD call quality Voice over IP phones was not always this good, In the past, call quality was a major problem of VoIP. The inconsistencies could be infuriating, sometimes calls dropped, and sometimes you experience call delays.

As the internet bandwidth increases, so as the call quality of VoIP increases. Now calling over VoIP is crisp and clear compared to what you get on a landline phone.

If you are not available to pick your calls, your cloud PBX provider automatically forwards your calls to your cell phone. VoIP ensures you are always available and online even if there is a power outage.

Consumers Expect From VoIP Service Providers
Source: Techpluto

Tips for Selecting the Right VoIP Provider

After understanding how VoIP works, the best VoIP features, and the requirements to look after, the next step is to find the right VoIP provider to address your needs. Here are some helpful tips for selecting the right VoIP provider.

1. Know Your Business Communications Needs

Identify what your business communication needs are and how VoIP can help you solve them. Without this step, you will operate on blind assumptions when choosing the right VoIP provider for your company’s needs.

Here are some questions that can help you identify those business communication needs.

  • What type of business number does your company need to function effectively? Is it a local number, toll-free number, international number, or all of them?
  • How many outbound calls does your business make?
  • How many inbound calls does your business make? If it is a large number, is it a call routing solution?
  • Do you have multiple locations?
  • Do you have telecommuting workers or remote workers?
  • Does your business require active collaboration between teams?
  • Do you need audio or video conferencing software?
  • Do you use fax? Business SMS?
  • Do you want to integrate all your business tools (project management software, scheduling software, call center software, and CRM software) with your communication needs?

These questions and more will help you understand your business communication needs better. Once you identify what your operational needs are, you can now make a near accurate judgment about the best VoIP providers for your business.

2. Compare Different VoIP Providers’ Plans

One of the best and logical tips for selecting the right VoIP provider is a simple hack everyone knows but not everyone implements.

By comparing the different VoIP providers’ plans, you get the best deals available at the moment. Some of the best business VoIP providers include Grasshopper, Nextiva, CallHippo, Ooma, and other Ooma alternatives.

These VoIP providers can help you meet your business communication needs. However, you need to narrow them down to just one. Selecting the right VoIP provider is not easy with the bunch of good VoIP providers in the marketplace.

Understanding your business communication needs will help you make the right choice. There are three different types of VoIP providers: VoIP-only Providers, VoIP with Cloud Phone System Providers, and VoIP as Part of Unified Communications Solution Providers.

VoIP-only Providers

This type of VoIP service provider focuses only on providing telephony functions for consumers and businesses. It provides basic features like caller ID, voicemail, and call forwarding. If you need simple phone calling functionality and few or no call management features, these providers are ideal for you.

VoIP with Cloud Phone System Providers

This class of VoIP providers combines VoIP with cloud PBX technology to offer cloud-based services for its users. They provide businesses call management features such as making and answering calls, answering rules, auto-attendant, and virtual extensions.

VoIP as Part of Unified Communications Solution Providers

This class of VoIP providers offers all the advanced features of VoIP with cloud phone system providers and more. It combines a host of communication tools such as VoIP, fax, cloud PBX, team messaging, and online meetings into one platform.

The third option provides businesses with a central hub for all their communication tools. It addresses all the common communication needs your business will have in one platform.

3. Check the Reliability and Security of The VoIP Provider

Even if your VoIP provider ticks all your business communication needs, do not make the purchasing decision yet until you have checked these two crucial criteria: reliability and security.

Generally, VoIP is not a secure service because it is done over the internet. Ir is susceptible to data breach during transmissions. However, there are impenetrable firewalls and protections that VoIP providers deploy to protect users’ data during VoIP calls.

VoIP providers deploy high-level encryption during the transmission of the data over the internet. The data sent is encrypted from the sending point and can only be decoded via a decryption key at the receiving point. If the VoIP provider does not offer strong high-level encryption, it can not safeguard your data.

Reliability is another factor to take into consideration when selecting the right VoIP provider. An ideal choice should have multiple data centers in different locations. When a VoIP provider has multiple servers in multiple data centers, it helps ensure that another will take its place even if one server fails, thus preventing any disruption.

Other security and reliability measures adopted by the best VoIP providers include:

  • Advanced account management and administration
  • Regular audits of data centers
  • Robust and secure networks
  • Support of Multi-Factor Authentication (MFA)

4. Check What Others Are Saying About VoIP Providers

Customer reviews are a gold mine of information about VoIP providers. These customers have used or are using the service, their appraisals or negative reviews should be taken into consideration. Going through reviews can prevent you from making a wrong mistake.

Granted, there are spam reviews that make it difficult to spot valid ones. However, it is still worth checking out people's opinions and investigating their claims further.

Another way to prevent yourself from choosing a non-suitable VoIP provider is to check the number of brands that use it. Big brands research to ensure the service they sign up for is good. A VoIP provider with many big brands under it is almost guaranteed to be the right one.

5. Check the Pricing and Plans of the VoIP Provider

The other four tips for selecting the right VoIP provider are immaterial if you cannot afford the pricing plans of the VoIP provider. After you have hand-picked several VoIP providers that trick your business communication needs, the next is to pick the best VoIP service that fits your budget.

Higher-priced VoIP services typically perform better than lower-priced VoIP services. However, the highest-priced VoIP services may not offer the best value. Choose a VoIP service provider that offers the best value for your business.

Start Making VoIP Calls and Save Money

Switching over to VoIP services will help you save money on your communication services. The cost of making international and long-distance calls are virtually free with VoIP service. You are not charged per call but only for your internet access.

If you decide to start making VoIP calls, you do not have to buy IP-enabled phones for all your employees. The best VoIP providers allow you to use your existing telephone equipment, even if it is an analog device to make VoIP calls.

Some of the best business VoIP providers include Vonage, Ooma, RingCentral, RingCentral alternatives, Nextiva, Grasshopper, and Vonage alternatives.

RingCentral is the best business service for small businesses looking for a complete solution. Ooma is the best VoIP provider that offers high scalability for small businesses.

Nextiva is the best business VoIP service that provides communication, collaboration, and CRM tools for medium-sized businesses. Grasshopper is the best VoIP provider for small to medium-sized businesses looking for highly mobile options.

Vonage is the best VoIP service provider 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.