Simply put, voice over IP (VoIP) technology, or IP telephony, as it is often called, is a system for transmitting telephone calls over data networks, such as the ones that make up the Internet.

While VoIP technology is set to revolutionize communications, and is already being used by a number of traditional telephone companies to connect their regional offices, on a smaller scale it can also be a useful solution for businesses looking to trim their telephone expenses.

The advantages of using VoIP technology are simple: its use can result in huge savings on the amount of physical and resources required to communicate by voice over long distances. It does so by working around circuit switching architecture, one of the fundamental drawbacks of traditional telephone networks.

Traditional circuit switching-based telephone networks operate by opening a circuit between two points, identified by their telephone numbers. This circuit remains open, and transferring at its full capacity for the duration of the call, until somebody disconnects it by hanging up. Much of this capacity is wasted during a normal telephone conversation, because while the line is working at full capacity, not all of each user’s time is spent transferring data, or talking. Normal telephone users, of course, spend much of their time listening, or receiving data. Furthermore, during the course of a normal phone call, there is often dead air. All of these things are wasted capacity.

Data networks operate in an entirely different way. They communicate through packet switching, a much more efficient scheme for exchanging data. Instead of keeping a circuit open constantly, they send and receive data only as needed, a bit at a time, in data packets. By doing so, packet switching-based data networks free up network resources, as well as the resources of the computers sending and receiving information.

VoIP technology uses packet switching to minimize the amount of resources used in a telephone connection by exchanging the information in packets over a data network. This allows several phone calls to use the space that just one call would have occupied in a circuit-switched network.

In the case of an office, telephones might be connected to a private branch exchange (PBX), a device designed to connect a number of phones or extensions to an outside line. Using a gateway, a device used to translate the standard circuit-switched signal generated by the telephones into digital information that can be sent over the data network. This signal is usually an IP signal, the standard protocol used by most data networks.

One of the advantages of using packet-switched networks to carry telephone communication is that the infrastructure is already largely in place in the form of the many data networks that make up the Internet, and that infrastructure is already understands the technology.

There are two major protocols used by VoIP technology to allow telephones, computers and other devices on the data network to communicate with each other: H.323 and SIP. The H.323 standard, a suite of protocols created by the International Telecommunications Union is a very wide-ranging and very complicated protocol, providing specifications for a range of communication including video conferencing, data sharing and VoIP, and it can be complicated to set up. The Session Initiation Protocol (SIP) emerged after H.323 as an alternative, guided by the Internet Engineering Task Force. SIP is a much simpler, more streamlined protocol developed specifically for VoIP use, and designed to employ other protocols in handling parts of the communication process.

Using either gateway devices, or software applications on computers, VoIP technology can allow users to communicate by voice from computer to computer, computer to telephone, telephone to computer or telephone to telephone. Businesses can take advantage of the technology by using it to route voice data over their existing data networks, or by purchasing VoIP services from IP service providers.

VoIP technology is growing in acceptance, and it seems inevitable that the cheaper, more efficient technology will play an important role in the world’s telephone communications. But it can also mean immediate cost savings and improvement in efficiency for businesses that chose to implement it now.