what is voip

What is VoIP and How does it Work?

Part of our Back to the Basics Series. See also: PSTN, SIP Trunking, and Telephony.

It turns out there is more than one way to skin a cat.

There’s no need to call the SPCA. No one is actually skinning cats here.

Not too long ago there weren’t a whole lot of options for making phone calls. That has all changed today. If you’re wondering what Voice over Internet Protocol (VoIP) telephony is, how it differs from the public switched telephone network (PSTN), what pieces make VoIP work, and what some of the advantages of VoIP are then put your feet up and read on.


VoIP provides an alternative method for making phone calls than the PSTN. The crucial distinction between how these differing systems accomplish the task of transmitting information is in the type of switching employed.

The PSTN uses circuit-switching technology. In other words, the PSTN opens up a direct connection between two subscriber lines that allows the system to send and receive information from each party in real time. A new connection is established with every phone call made and is closed when the phone is hung up.

VoIP, however, uses packet-switching technology. The nitty gritty of how this process works is addressed below, but at a high level, the voice audio is digitized and broken up into little pieces called packets that are sent over the internet and follow the path(s) of least resistance to the other end. Once the packets reach their destination they are reassembled in the correct order and played back as audio.

What Is VoIP?

VoIP is a term that gets bandied about quite frequently, but such liberal use of the term has distorted its meaning. Like when you studied for the SAT and the verbal section focused on fine shades of difference between words, so too is the case with Internet Protocol Telephony (IPT).

Really, IPT is an umbrella term that includes both Internet telephony and VoIP. The second edition of Telecommunications Essentials by Lillian Goleniewski provides definitions for each of these:

  • IPT, broadly speaking, is the transmission of voice, fax, and related services over packet-switched IP-based networks.
  • Internet Telephony is a form of IPT where the principal transmission network is the public Internet.
  • VoIP is another form of IPT in which the principal transmission network or networks are private, managed IP-based networks.

System Structure, or What Components Make up VoIP?

Going down the VoIP rabbit hole means that things can get complicated things quickly.

The VoIP network is actually modeled on the PSTN network, but several different pieces of hardware and software exist to make the packet-switching possible.

IP Devices

These constitute the actual handsets, or similar, used to make a phone call. Legacy phones can connect to a VoIP network with an adapter. Other calling options include an IP phones look like regular phones, but they connect to the network using an Ethernet jack rather than a telephone jack. Computers that have the right software and hardware accessories (microphone, speakers, soundcard, headset, etc.) can also be used to make VoIP phone calls.

Media Gateways

“Gateways provide seamless interoperability between circuit-switching and packet-switching network domains.” In other words, the media gateway connects the IP network to the PSTN and allows those two networks to talk to each other. Gateways also handle IP signaling functions and support Local Exchange and Toll switches on the PSTN. On top of all that, gateways can handle a wide variety of traffic types: data, voice, fax, multi-media, etc.


The function of the softswitch is to “control the voice or data traffic path by signaling between media gateways that transport the traffic.” Softswitches use established protocols and specifications to ensure “that a call’s or connection’s underlying signaling information gets communicated between gateways.” This information includes things like caller ID, billing info, and other call triggers. Whereas a media gateway is an actual piece of hardware, a softswitch is software, and can be incorporated into a media gateway.


IP PBXs can do everything that traditional PBXs can do, and a whole lot more. An IP PBX allows companies to leverage its managed intranet for voice and data applications. These can run the gamut from conferencing, to unified messaging, to multimedia, to collaborative applications, and more. IP PBXs can be physical hardware or software, and, as a result, businesses can leverage hosted IP PBXs for their needs.

How does a VoIP call work?

Well that depends on whether the called party is on an analog phone or another IP device. There are many different VoIP providers that facilitate VoIP calls.

If you’re calling another IP device the call doesn’t need to connect to the PSTN. A caller dials the number and the call is passed from the device to a router. The router passes the call to the internet where it reaches one of the VoIP provider’s servers. From there the call gets passed along local internet lines on the other end to the recipient’s router and then to their IP device.

The process for calling an analog phone is exactly the same except with one altered step. After the call leaves provider’s servers, it goes through a media gateway that translates everything from digital to analog and passes the call to the local PSTN. The call is then carried along the local PSTN as an analog signal to the correct subscriber line.

VoIP has useful applications for everyone from individual subscribers to large enterprises. The future is bright for VoIP as the number of applications and its technological capabilities continue to increase. Session Initiation Protocol (SIP) has emerged as a technology that complements VoIP quite well. Stay tuned for more information on SIP.

Are VoIP calls free?

Now that you know, in broad strokes, how VoIP works, it’s worth re-visiting the distinction between VoIP and Internet telephony. The conflation of these two types of IPT has created a belief that VoIP is free. Well that couldn’t be further from the truth.

Remember, VoIP relies on private, managed networks. This means that a company leases internet lines directly from a bandwidth provider, which results in better quality of service (Note: an intranet is another type of private network). There are plenty of different VoIP companies, but one that many people are likely familiar with is Vonage. While these providers may offer less expensive options than a traditional phone company, their services certainly aren’t free.

On the other hand, internet telephony operates over the public internet. This is the province of “over-the-top” (OTT) services like Skype, Google Voice, and Apple’s Facetime. OTT refers to any service that is delivered using your Internet Service Provider’s (ISP) network, but isn’t provided directly by the ISP. For example, On-Demand movies that you access through your cable box are not OTT, but Netflix and Skype are.

You may not pay directly to make calls with Skype or Facetime, but because those services work on the public internet they are more susceptible to lag, dropouts, and other errors.

Why does VoIP cost less?

The short explanation is because VoIP uses less data.

By way of comparison, a circuit-switched opens a direct connection between two lines and eats up data for the entire duration of a call. Packet-switching doesn’t need a direct connection, instead utilizing any number of routes to deliver the call information. When someone speaks, data is sent, but periods of silence don’t generate data like they do on the PSTN.

Think of this this way. Back in the day, before playlists, iTunes, and Spotify, folks recorded songs off the radio onto cassette tapes. If you had a sixty-minute tape you could just press record and let the tape run in the hope that the song you wanted to hear came on in that thirty-minute window (remember there’s a Side A and a Side B), but this could waste a lot of tape.

The other option was to wait until the song came on and scramble to hit the record button in time. This way you only got the song you wanted and had room to record many more songs too.

VoIP works like option two, except that you don’t have to worry about the rush to hit record.

VoIP Advantages/Disadvantages

There are plenty of advantages that go hand-in-hand with VoIP. Efficiency and cost savings are attractive in their own right. The ability to develop unified communications solutions that incorporate telephony also makes VoIP an extremely useful technology. For example, a company can integrate internet-dependent services, including voice, fax, email, instant messaging, and other real-time or data services. Having this application flexibility is a major benefit of VoIP.

Call quality persists as one area where VoIP lags behind the PSTN. The PSTN set the standard for call quality, and doesn’t suffer from latency issues because the connection between the lines is constant. In other words, everything happens in real time.

With VoIP data is sent in bursts. Only when someone talks and audio gets packetized does it get passed between devices. This means that there is greater potential for latency or dropouts if packets get lost or if there are hiccups in the re-assembly process.

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