Voice over Internet Protocol (VoIP) is all but essential for modern business communications. Still, many professionals likely wonder “what is VoIP?” — whether they mean what VoIP stands for or what older technologies it replaces.

To address these questions and more, let’s take a deep dive into info on VoIP phone systems. We’ll also help you consider which version of voice over IP will best benefit your business.

What Is VoIP?

“VoIP” stands for “Voice over Internet Protocol.” It’s software that sends and receives voice calls through the internet, often taking the place of a traditional phone line.

VoIP technology typically works through services or software, most often on your computer, smartphone or a dedicated VoIP phone. This software translates received sounds into a digital signal and sends it through the internet to the device on the other end.

It’s these factors of multiple devices and an internet connection that differentiates VoIP from traditional landline telephony. Whereas analog telephony limits users to a physical, plugged-in phone, voice over IP allows for calls from a wider variety of devices. It’s this distinction that makes VoIP so flexible — especially for an office with a large local area network.

Although we tend to think of VoIP as a new invention, it has actually been in use since the 1990s. Primitive by our standards, early VoIP services sent voice signals over dial-up connections or copper wiring, resulting in lowered audio quality.

However, as high-speed broadband connections became more available, this technology became more robust and more accessible to average users. By now, it’s become far more commonplace in everyday business and personal contexts. 

Now, VoIP is the default communication tool everywhere, with concepts like the softphone, IP telephony and the VoIP phone a mainstay in business lexicons.

How Does VoIP Work?

Although we covered the basic flow of how VoIP works in the above definition, the actual way it works is more complex.

Step 1. Establish an Internet Connection

Because VoIP works only through an internet connection, you will first need to connect the device you intend to use to the internet. This can happen via an Ethernet connection or, more commonly, a Wi-Fi connection. In the case of smartphones, a 4G or 5G data connection will also suffice.

Step 2. Start a Call With the VoIP Application

Once a reliable internet connection is established, you can use a VoIP app to start a phone call. From the user’s side, this is typically as simple as clicking on a given contact in your application’s address book, then selecting “call.” Many internet telephony applications also allow manual dialing, letting you enter a number of the other party just like a traditional telephone system.

Step 3. Creating a Voice Connection

Next, the VoIP service attempts to establish a connection with the other party you have chosen. Here, your app connects to your voice provider and tells their servers which number it’s trying to contact. The server then sends a signal, known as “data packets,” to the other number over the internet. Depending on the type of VoIP service you’re using, it may contact landline phones or international phone numbers through this process. (Yes, this tech can even work for long-distance and international calls!)

Step 4. Transmitting Voice

If the other party answers their phone, the connection will be established and voice communications may begin. On your end, any sounds picked up by your device’s microphone are converted into a digital signal. Your VoIP application then transmits these signals to its respective server, and from there, delivers them to the other party’s device.

VoIP calls function so quickly that this entire four-step process can take place in seconds, ensuring that calls happen instantaneously. However, the reliability of your VoIP experience will come down to the quality of your VoIP application and provider, and the quality of your internet connection.

Those asking “what is VoIP” should bear in mind, however, that even this is a somewhat simplified version of how it functions.

Why Should I Use VoIP?

Of course, this explanation alone doesn’t address the advantages of VoIP, in particular what the benefits of VoIP for business are.

In brief, this technology brings with it an enormous number of business benefits, many of which are critical for companies today. But let’s go into the individual reasons backing this point up.

Cost

Compared to analog telephony, VoIP solutions are far cheaper to set up, customize and maintain, especially since deploying them requires little to no physical equipment. Furthermore, since voice over IP works using the internet and internet-connected devices, installations and upkeep become much simpler. With access to today’s high network bandwidth capabilities, data has never been cheaper.

Scalability

This alludes to another benefit of VoIP: its ability to scale up or down, especially when compared to a traditional telephone system. If you want to add on more users, you won’t have to add more wiring and connect it to a physical PBX. Instead, you add new accounts to your VoIP phone system, set those accounts up on the relevant devices and connect them to the internet. 

Not only is this process quicker and simpler, it’s also cheaper to carry out due to the reduced labor and equipment involved. Furthermore, there are more options when it comes to devices. Voice over IP calls can be conducted via dedicated hardware such as IP phones or, most commonly, existing computers and smartphones.

Portability

Because VoIP needs an internet connection to work instead of a dedicated phone port, it’s possible to take this technology on the go. Regardless of whether you’re using a computer, smartphone or other piece of hardware, your softphone will work exactly the way it does in the office. This means that from any location and from any device, a VoIP user can send and receive phone calls from the same number.

Through this consistency, VoIP is all but essential for work-from-home and smart working options at companies. Not only is smart working a proven way to lower expenses and improve productivity, it’s an easy means of attracting talent to your company while improving employee satisfaction.

Usability

Unlike traditional telephony, VoIP can be upgraded with numerous enhancements to improve company workflows. One example is voicemail transcriptions, or transcribing voicemails to text and emailing them to the relevant user, which saves time in communications. However, VoIP can also provide faster call transfers and hand-offs, caller ID, call analytics, online status indicators, customizable contact lists, fax capabilities, video and more. 

Furthermore, digital telephony systems usually integrate with other software, such as your email, online calendars or customer relationship management (CRM) software. These integrations primarily make daily workflows easier by reducing the number of separate applications employees have to open for any given task. 

Future Proofing

Many areas are doing away with copper cable and wire. In the UK, Openreach is switching off the Public Switched Telephone Network (PSTN) in December 2025. In the United States, internet service providers are switching over from plain old telephony systems (POTS) to fiber broadband. This means more people are asking that repeated question of “what is VoIP?” — due to an outright need to upgrade their old PBX or switch it out for a VoIP phone.

Are All VoIP Options the Same?

Like most digital technologies, VoIP systems are available in a variety of options. However, this manifests as differences in its installation rather than many noticeable changes in use by staff.

Nevertheless, when asking what is VoIP and about the larger benefits of voice over IP, you must consider each of these options to make sure that your setup matches your business’s communication needs.

Types of VoIP Installations

On-Premise VoIP

On-premise VoIP phone systems function by installing a PBX within the building. This is similar to an analog system in that it’s a piece of physical hardware that will typically occupy its own room and become part of your network. The main difference is that instead of switching landline phone connections, a voice over IP PBX houses firmware that enables inbound and outbound calling for internet-based numbers.

Once the PBX is installed, it’s connected to the building’s local area network (usually through a managed switch) and then to the internet. To connect this PBX to analog telephone lines, an SIP (session initiation protocol) trunk may be used. You can learn more about SIP trunking and its benefits here.

Although this system is located at one physical location and occupies a point on the office network, it provides telephony services to its associated accounts anywhere. So long as users are connected to the internet, they can still place and receive calls when outside the office. 

However, out of all possible VoIP options, an on-premise model is typically the most expensive to install. And because it uses physical hardware at your business’s location, it incurs maintenance costs and hours of labor. 

The system will also be more difficult to expand, as adding numbers to the PBX over its initial limit will require a physical upgrade — not ideal for businesses that plan on expanding. Additionally, if your business’s PBX is damaged or goes offline, all users associated with it won’t be able to make or receive calls.

Hosted VoIP

Also called a cloud PBX, a hosted VoIP system requires no additional hardware for the end-user. Unlike an on-premise system, a hosted system functions entirely through the internet: Users connect their devices to the web, log into their respective accounts and from there can send and receive calls over internet protocol.

The actual hardware that hosts the voice over IP system is located off-premises and is typically owned and operated by the respective provider. Effectively, the hosted option means your provider is connecting you to their own hardware, instead of offloading an instance of their system to you.

From a usability standpoint, there are no meaningful differences between a hosted PBX and an on-premises one; both are routing VoIP calls over the internet, and both may be used anywhere there’s an internet connection. 

That said, the cost of deploying a hosted solution is significantly cheaper and the system doesn’t incur on-site maintenance fees. Scalability is covered too, as the PBX won’t require upgrades to expand. Even better, businesses can expect more reliability with a hosted system, as their provider will have ways to continue service in the unlikely event one of their main systems goes offline.

All told, a hosted option is the easiest and most convenient one to use in nearly any context, offering much more substantial benefits compared to a traditional phone system.

Hybrid VoIP

For certain outliers, however, the hybrid model may be the best approach. 

As the name implies, a hybrid voice over IP setup combines the main elements of on-premise and hosted models: It leaves a business’s current PBX in place, but it connects the system to a provider’s hosted phone system. At the same time, it’s different from both models because although the legacy system isn’t replaced with VoIP-specific hardware (new hardware adds onto what’s already there), on-premise hardware remains integral to the business’s telecommunications.

Hybrid installations are often the go-to pick for businesses with existing landline infrastructure. And for a clear reason: it allows them to use their existing analog numbers and a VoIP phone system at the same time.

However, this installation incurs large upfront costs. Afterward, the remaining hardware requires upkeep — often requiring access by techs, whether from a managed service provider or internal staff. Additionally, in the event of an on-premise outage, the local company phone system won’t operate, rendering desk phones unusable.

These points aside, the hybrid model can have the same VoIP capabilities as on-premise and cloud systems, making it a potential middle ground for those companies that still want to use their legacy phone system.

What Should I Look for in a VoIP Solution?

Of course, even now that we’ve described what VoIP is and how it can benefit your business, we arrive at an even more important question: Which VoIP provider and which of their services do you need?

The easy answer is that your choice of VoIP solution and provider should be one that supports your business processes and gives you a path toward a measurable ROI. Of course, multiple factors will play a part in achieving these goals.

Reliability

Any worthwhile VoIP service provider should be able to provide services you can safely rely upon, both in terms of the actual call stability and customer support. It’s critical that your chosen provider can relay calls consistently and with high call quality. But should you have an issue with your PBX, knowledgeable and readily available customer service is a must.

Plans & Pricing

Most VoIP offerings include benefits that far exceed a traditional phone system yet at a lower cost. However, when wondering if a VoIP phone system is right for you, price is a major factor.

Not all businesses have the same needs in terms of deployment, nor do they have the same budgetary options. A good VoIP provider for you should be able to match your needs in both departments without compromising on quality of the installation or subsequent upkeep. Again, this applies regardless of whether you go on-premise, cloud or hybrid for your system. 

If you find a VoIP option that’s affordable and scalable as is — without salespeople offering sudden convenient discounts — that’s a great sign. Even better is if the plans are easy to understand, so that you aren’t at risk of entering a less-than-transparent contract. That said, you often get what you pay for, with low cost VoIP solutions often missing out vital functionality.

Applications

As discussed earlier, VoIP can be far more than voice calls over a different infrastructure. To maximize your investment, consider if providers include additional capabilities like voicemail transcripts, support for multiple devices and similar functions. 

Additionally, it’s worth investigating if the applications you want can be used through just one interface or if they come as separate pieces of software, as the former option will make for easier employee training and smoother day-to-day use. VoIP apps for mobile can be crucial, as well, as smartphones are vital for day-to-day life across the world.

Customization

That said, you may well not want all the VoIP options a provider has available, especially if extras come with an additional price tag. A good VoIP provider should therefore be able to customize a solution to your business’s needs, to the point that they offer a recommended package of services based on your situation. 

Like a classy dress or suit, a VoIP phone system is something you’re going to be using for a long time; it’s best that it’s tailor-made to fit you.

Security

The unfortunate truth of the internet is that putting anything online makes it vulnerable to attack. This being the case, it’s critical you weigh the security of a given VoIP phone system alongside all other elements. This means verifying the service provider establishes effective security measures, like encrypting your communications and data and issues updates. 

However, it’s worth considering what impact any implemented security measures will have on the system’s usability and how much upkeep the security will require. Ideally, a provider should be able to keep communications and data secure without impacting the user experience or adding to costs. It’s always better to choose a VoIP solution that’s secure by design.

What Is VoIP: Closing Thoughts & Main Takeaways

Simply answering “what is VoIP” is fairly easy. Voice over internet protocol may be at its simplest just telecommunications over the internet, but in practice, this technology is far more. On top of increasingly becoming a necessity due to the phasing out of traditional telephony, VoIP represents increased productivity and lower expenses while enjoying the usual benefits of phone services. This, alongside the smart working capabilities it opens up, mean the benefits of a VoIP phone system are 

All the same, VoIP comes in many forms, and this provides businesses the opportunity to select a deployment that’s right for their particular scenario. As such, it’s all the more vital that you select a VoIP service that’s relevant to your own business’s needs and capabilities. That’s why it’s crucial you understand what is VoIP and how it works.

Having learned all this VoIP info, it’s critical that you now examine the options available and consider which is right for your business.

One exceptional option for a VoIP service is Wildix. The first digital communications solution built to increase sales, Wildix has a convenient browser-based interface and security built directly into the system’s architecture. Wildix features incredible flexibility in deployment and has earned a spot on the Gartner Magic Quadrant.

Learn more about what makes Wildix different with our white papers on security, smart working and VoIP for business continuity.

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