What Is a VoIP System? The Ultimate Guide for 2020

What is a VOIP System?
The Ultimate Guide for 2020

The invention of the telephone remains widely regarded as one of the most important innovations of the 19th (and 20th) century. It has changed both how people communicate and how companies conduct their business. Nevertheless, the era of the conventional telephone is coming to an end as the ubiquity of digital communication has paved the way for more cost-effective and convenient ways to connect. As we will explore further, Voice over Internet Protocol (VoIP) has become one of these new digital communication pillars.

In 2018, the number of fixed-telephone subscriptions in the US measured 116.72 million, a drop from 192.51 million subscriptions in 2000, according to Statista. The World Bank also charted the decline of fixed-telephone subscriptions on a global scale (906.7 million in 2018) versus its peak (1.261 billion in 2006). Notably, the World Bank’s definition of fixed telephones includes VoIP provided the endpoint is associated with a physical address.

The VoIP market is expected to grow or reach $55 billion by 2025, according to a Market Study Report. This report includes other projections during the forecast timeline:

  • The managed IP PBX’s projected compound annual growth rate (CAGR) is over 12 percent.
  • The phone-to-phone VoIP market’s projected CAGR is over 17 percent.
  • The international VoIP calling’s projected growth rate is over 11 percent.
  • The fixed VoIP market is forecasted to have a share of over 55 percent in 2025.
  • The consumer segment of VoIP’s forecasted CAGR growth is over 14 percent.

These numbers paint a bright future for VoIP, one that is both dynamic and flexible as businesses grapple with ever-changing demands.

When you’ve finished reading our guide, you will (hopefully) have developed the a better understanding of VoIP. Namely: what it does, what it looks like, and what it brings to businesses like yours.

The adoption of VoIP is inevitable. Plain old telephone
service (POTS) is becoming expensive for both end users and
providers. The providers may have to maintain the lines and networks for $13.5 billion a year despite the declining subscriptions.

In 2015, the Federal Communications Commission (FCC) published a rule mandating the transition from copper wires to transition to fiber optics and newer technologies, like VoIP. Optical fiber telephone lines will still use circuit switching, a hallmark feature of traditional telephone lines.

Europe is also poised to transition to an all-IP service:

  • Estonia and Germany completed the full transition to VoIP in 2018, with the Netherlands set to complete its transition in 2019. Portugal is expected to achieve a 100 percent transition to VoIP by 2020.
  • France, Poland, and the United Kingdom are not expected to complete the all-IP transition until 2025.

Let’s get started on VoIP.

Voice over Internet Protocol allows users to communicate via the
internet. It is touted as a better and cheaper alternative to the
traditional phone system characterized by analog transmissions over copper wires and
long-distance or international charges.

As its name implies, you place a voice call through the internet instead of through the telephone service company. Aside from voice, it can transmit data and video content through IP. While VoIP can work in homes, it’s often businesses that are the technology’s main customers.

Hosted PBX or On-Premise PBX

A private branch exchange does away with the cost of establishing one line for each user to the telephone company’s central office. Enterprises own this private network that is linked to the public switched telephone network (PSTN) through limited gateways.

PBXs traditionally use analog telephone lines, but now they encompass VoIP and Integrated Services Digital Network (ISDN). For VoIP, there’s IP PBX, which can switch calls between VoIP on local lines or VoIP and traditional telephone users. The two main options for IP PBX is a phone system that is managed on-site and one hosted or managed by a VoIP provider.


Pain Points

Best For

Hosted PBX On-Premise PBX
  • It offers the most straightforward way and least physical effort to operate a PBX.
  • The system is operated online and thus works using VoIP.
  • The VoIP provider houses and handles the IP-PBX for a monthly fee.
  • You won’t incur maintenance and deployment costs.
  • Upfront costs are limited to IP phones or analog telephone adapters (ATAs).
  • It is fully customizable, with you configuring your VoIP connections to suit your needs on-site.
  • The setup can have advanced call features and unified communications (UC).
  • You need a reliable and robust internet connection to ensure the quality of the calls.
  • Internet connectivity problems and power outages mean no phone service.
  • Adding phones or more features can entail an increase in pricing.
  • Packages vary by provider, so some functions may not be available.
  • The setup can entail high up-front costs as you have to buy all the PBX equipment from IP phones to interface cards.
  • You also have to set up and maintain the local physical phone network, including hiring someone to do the installation.
  • You have to set aside physical space to store the equipment and provide training on PBX.
  • Scalability can be an expensive venture, given the up-front and ongoing maintenance costs.
  • Hosted PBX fits businesses that don’t require complex PBX infrastructure and integration. They can benefit from a cost-friendly system that can be scalable, flexible, and mobile.
  • On-premise PBX suits businesses that want greater control over their phone system.

You can talk to anyone, anywhere at a fraction of the traditional cost. For as long as a reliable internet connection is present, VoIP calls can occur, even simultaneously.


Make VoIP calls with an array of equipment that can be readily secured and accessed. You also can choose between on-premise and hosted PBX, whose kin virtual PBX offers session initiation protocol (SIP) trunking, which carries voice traffic using IP.


You can add or remove lines under a VoIP system with fewer costs. VoIP extension dialing, for example, enables you to make or receive calls inside or outside the office. You can’t say the same with traditional telephony, whose every extension to the trunk line—a high-speed connection between telephone central offices in the PSTN—is expensive.

Multi Featured

For a monthly fee, you can get VoIP and related services. These include phone calls, call recording, call forwarding, call routing, videoconferencing, conference calls, remote extensions, minutes for international calls, voicemail to text or email, HD voice quality, remote capabilities, and multiparty conference chats.


Digital signal is faster than an analog one; it also has lower chances of downtime because of too many calls. According to Fits Small Business, most broadband connections have bandwidth requirements that can support one to 10 concurrent VoIP phone calls.


You can set up and enjoy VoIP and relevant features for a lower cost. VoIP calls per se are also cheaper. Companies can cut their phone bills by as much as 60 percent.


Reliable internet service is critical to VoIP calls. A slow or weak connection can result in interruptions and dropped calls.

To facilitate VoIP calls, you need a bandwidth of at least 512 Kbps. Take note of your network speed and general internet usage when applying for VoIP packages.

Security risks

VoIP is secure, but it can be susceptible to online attacks, such as malware and hacking. Using encryption is one way to mitigate these security risks.

Also, check that your provider is compliant with relevant laws, such as the Health Insurance Portability and Accountability Act. Interestingly, PSTN does not have airtight security, with wiretapping as a perfect example.

The 411 on calling 911

If you are calling 911 via VoIP, share your location immediately. It is difficult for operators to trace the location of the call. VoIP service Skype iterates that it does not replace telephones and can’t be used for emergency calls. As it is, the FCC has developed benchmarks for indoor location accuracy by cellular carriers and this guide for VoIP 911 calls.

VoIP works this way: You place a call using a phone (an analog telephone with a VoIP adapter, IP phone, or cell phone) or a computer, for that matter. The voice signal is transformed into digital data and transmitted to the receiver. Accordingly, the call bypasses the processes that would have occurred on a typical landline.

You will need software and hardware to make phone calls through IP, as noted below.

VoIP Codecs

A codec is a device that combines two functions, coder and decoder (hence the term codec), and is the essence of VoIP. A codec converts an audio signal into digital data. According to Wikipedia, the coder encodes an audio signal for transmission. Meanwhile, a decoder uncompresses this encoding for replay or editing. Certain kinds of codecs compress data to reduce data storage space and transmission bandwidth.

VoIP and similar applications, like videoconferencing, utilize various codecs that are classified into two groups. Their main difference lies in their coding/decoding mechanism.

  • Group I refers to waveform codecs, including G.711 PCM, or pulse code modulation, which converts analog signals to a digital one.
  • Group II codecs are lossy codecs, which reduce quality to maximize compression. G.729A, a linear predictive coder, is an example and is the most widely used codec in VoIP.

VoIP Phones

A VoIP phone is the primary endpoint equipment for placing a call in the VoIP network. They can come in many forms.

1. Analog Telephone Adapter

An ATA plug-and-play box is used to connect an analog phone to the internet and make VoIP calls. The device communicates directly to the server and uses codecs such as G.711 and G.729.

ATAs can provide huge savings for businesses because they get to keep their existing desktop phones and switch to VoIP without delay. This is how you set up the adapter:

  • Use the Ethernet cable: one end goes to the router, and the other to the port labeled as internet on the adapter.
  • Plug your phone’s cable into the adapter’s phone port.
  • Connect the DC cable to the appropriately labeled port on the adapter, and then plug its other end to a power outlet.

2. IP Phones

IP or VoIP phones are simply the device you use to make and receive calls. They look like standard desktop telephones, but they differ in the cable used and the features offered. Instead of the usual RJ-11 phone cable plugged into a wall socket, an IP phone uses an RJ-45 cable, the connector used for Ethernet network adapters. (RJ stands for “registered jack.”) Thus, they don’t need adapters because they can connect directly to the Ethernet.

IP phones can have caller ID display, call transfer, call hold, conference calls, call blocking, and more. These conference telephones are primary examples. VoIP phones rely on the internet and electricity to work.

3. Softphones

The term softphone refers to the software that is installed on the computer or a mobile device. It functions like a traditional telephone in that you can make, receive, and manage calls over the internet with a similar interface. Aside from voice calls, softphones can support video calls.

A typical softphone VoIP setup requires a computer, a software, a sound card, a microphone, and a speaker. For mobile VoIP, you only need a cell phone and app to start calling.

Is Skype VoIP?

Skype is an interesting example of VoIP; it has a softphone that supports voice and video calls. However, its video calls may not be the same as videoconferences. Skype uses proprietary software that only works with itself.

Videoconferencing and video and voice communication over IP for that matter use H.323 and SIP communication protocols. While it has a business version, Skype is more popular among individual consumers.

Packet Switching

It is a method of data transmission to a network. After the codec converts voice to data, this data will be broken down into small digital packets that will be sent to another computer. By breaking down the data into packets, the file is transferred in a fast and efficient manner with low latency. These packets will then be reassembled to their original form at their intended destination.

VoIP uses packet switching and is thus referred to as packet telephony. Packet switching differs from circuit switching, which PSTN employs. Under the latter methodology, switches create a wire circuit between two telephones when a call is made.

Circuit Switching versus Packet Switching

Here’s a comparison of circuit switching and packet switching.

Conversion &




Circuit Switching (PSTN) Packet Switching (VoIP)
Sound waves are converted to electrical signals and transmitted through a dedicated communications channel. This path is determined beforehand. Voice signals are converted to digital signals, which are broken down into packets and transmitted through the internet. Packets can choose to travel on the fastest route.
It requires up to 64 Kbps and reserves bandwidth in advance. Bandwidth can be wasted. It can require as low as 10 Kbps and does not need for bandwidth to be reserved in advance.
Circuit switching is expensive because it requires a dedicated line of transmission. That’s why it’s expensive to call overseas. No need for a dedicated line to make the switching. You can place calls in the network simultaneously with others.
A dedicated circuit ensures that all information is gotten across. Network congestion can lead to delays or loss of packets. You get low-quality voice calls in turn. To address the reliability of networks, the internet protocol suite or TCP/IP or transmission control protocol and internet protocol came about.

A VoIP network consists of many elements that link hardware and software to place or receive internet phone calls. Some of these network devices may be specific to a VoIP setup.

VoIP Gateway

It refers to a device or a standalone appliance that converts incoming PSTN calls into VoIP ones. VoIP gateway is thus known as PSTN gateway. The appliance comes in two types:

  • Analog VoIP gateways connect a traditional phone line that can accommodate as many as 24 lines.
  • Digital gateways connect legacy phone systems running on primary rate interface (PRI) and basic rate interface (BRI) standards to a VoIP network.

VoIP gateways function in two ways:

  1. PSTN to VoIP/SIP call conversion. Through the VoIP gateway, you can place and receive calls using traditional telephones because of better call quality and availability.
  2. Traditional PBX to IP network connection. The VoIP gateway allows calls to be made through VoIP or calls to be routed via the internet. They appear as PCI or digital telephony cards.

Session Border Controllers

A session border controller (SBC) primarily protects a SIP-based VoIP network from threats such as malicious attacks and threats like PBX hacking, VoIP hacking, and identity theft. Data is the currency, and malware is not exempting mobile phones.

The controller works with the firewall or the company’s network border to let in calls or sessions and maintain security on the network at the same time. SBC also signals and controls VoIP traffic by managing the transmission path of calls on the PBX network.

Wireless VoIP

You can use VoIP with wireless internet, placing calls inside or outside your home. This is called wireless VoIP, Wi-Fi VoIP, or W-VoIP.

Some IP phones have Wi-Fi built in, while others connect wirelessly through a USB Wi-Fi dongle. Worldwide interoperability for microwave access (WiMax) is also used to extend Ethernet connectivity within a home or office environment of up to 30 miles. WiMax has gateways that act as access points for the phone or other devices to hook up to the internet.

VoIP Adapters

VoIP adapters and analog telephone adapters, discussed above, are the same. These adapters play a vital role in connecting analog telephone systems to digital networks.

Adapters can have single FXS, dual FXS, and FXS/FXO ports, as well as those with built-in routers.

  • A foreign exchange subscriber (FXS) delivers the analog line to the subscriber, being that plug on the wall that provides the dial tone and receives the call.
  • A foreign exchange office (FXO) receives the analog line. The FXO functions as the plug on the phone that requests the dial tone and initiates the call.
  • An FXS/FXO connects an analog phone to a VoIP system.

The guide has pretty much set the stage for the
use of VoIP in entrepreneurial and commercial
undertakings. However, there’s no one-size-fits-all
setup because every business has different needs and goals.

Nonetheless, a standard VoIP business phone system consists of these essentials.

Internet service is the lifeblood of the IP telephony.

VoIP adapters bridge standard telephones to the internet.

IP phones are made for the technology and do away with adapters.

PBX helps you manage your phone system, including extension lines.

A computer (or mobile device), software, sound card, and headset are needed for a softphone setup.

Internet Service Provider (ISP)

The internet plays a crucial role in the transmission of voice calls, the quality of the calls, and the overall VoIP experience. You may have to upgrade your internet after conducting an initial assessment on your internet plan based on the following metrics.

Bandwidth, Upload Speed, Download Speed

Bandwidth refers to your internet connection’s maximum data transfer rate or the volume of data that can be sent over this connection in a specific period. The transfer rate can be in kilobits, megabits, or gigabits per second.

The rate that it takes for the data from your computer to get transferred to the internet is called upload speed. Download speed measures how fast you can pull the data from the internet to your computer.

As noted earlier, you may need at least 512 Kbps to support a single VoIP call. You also have to account for streaming media, browsing, opening emails, and other activities that share the bandwidth.

The more concurrent calls you handle, say in a call center with scores of people using the phone at once, the faster your internet connection has to be. For illustrative purposes, this chart contains minimum and recommended levels of bandwidth for concurrent calls.

Concurrent Calls





Bandwidth (Minimum)

100 Kbps

500 Kbps

1000 Kbps (1 Mbps)

1500 Kbps (5 Mbps)

Bandwidth (Recommended)

500 Kbps

2500 Kbps

5000 Kbps (5 Mbps)

7500 Kbps (7.5 Mbps)

Network Latency and VoIP Quality

Network latency refers to how fast a data packet gets from one point to another. For some, it describes the round-trip time from the browser to the server. Either way, latency should be zero or close to it. Otherwise, you will experience delays that affect the quality of the VoIP calls.

Latency is a product of many factors, such as transmission, which is through optical or wireless means; propagation; router; and storage delays. To reduce network latency and optimize bandwidth, consider the following:

  • Use an Ethernet connection for VoIP because it offers a direct line to the ISP and is thus more stable than wireless. Set up your network with switches, routers, and other devices to manage and direct traffic.
  • Look into bandwidth monitoring tools and services.
  • Run a ping test to determine latency.

Being the more advanced option between the two, VoIP costs less than the conventional telephone system does. How much does a VoIP cost? Here’s a breakdown of estimated expenses between VoIP and PSTN.



Setup Fee

Service &

of Lines


Total Cost
of Ownership


  • For phones, you can use a physical handset (analog phone plus handset, IP phone) or a softphone, which can substantially cut the costs.
  • There’s no need for the traditional PBX; a hosted one can suffice.
  • With a computer or an ATA, you can switch to VoIP immediately.

IT personnel can look after VoIP and the general networking needs of the company. You can receive a text or email alerting you to a call.

VoIP providers don’t do or incur much to set up a customer’s account. Some offer to waive setup fees.

Except for phones, perhaps, no other equipment needs to be serviced and maintained.

To upgrade to more lines, you have to upgrade your internet plan to achieve ultrafast and reliable connectivity.

Local and international calling minutes are often bundled into plans, and the pricing for international calls is usually lower than that of conventional phones.

Take into account the cost of handsets, the phone plan per user, additional charges for features and calls, and any upgraded internet plan.

Analog Phone System

  • A physical handset is a must.
  • It requires a traditional PBX, whose costs of installation, maintenance, and upgrade can add up.

You need personnel to manage the traditional PBX and answer the phone.

Setup fees take into account the telephone lines, the international calling costs, and other features.

The on-site PBX has to be updated and upgraded for optimal performance. It may be hard to find replacement parts or find people to maintain legacy phone systems.

Every extension requires a physical circuit. It becomes expensive to add more circuits.

Long-distance calls can be included in plans per phone line, but you’re likely to end up paying twice, as in this example.

You have the following to spend on phones, call charges, licensing and maintenance of PBX, hardware and software updates, and technicians.

These companies provide VoIP services to individuals and business entities. Often referred to as internet phone service providers, VoIP providers mostly cater to businesses because of their call volume and desire to minimize costs.

VoIP providers simplify using and maintaining a virtual business phone system. They provide services for a fixed monthly fee that includes the use of PBX. This PBX is cloud-based, allowing you to obtain virtual numbers, set up extensions, and manage everything on the same platform.

Here’s a quick recap of concepts and initialisms in this post:

  • VoIP: Voice over Internet Protocol refers to a phone system where calls go through the internet. It is also known as internet calling, internet telephony, and IP telephony.
  • IP: Internet protocol pertains to rules that govern the transmission of data packets through a network.
  • UC: unified communications refers to a phone system that integrates VoIP, chat, conferencing (video, audio, and web), and other methods of communication within a business.
  • A codec is a software or hardware that converts an audio signal into digital data.
  • RJ-45: registered jack 45 is a connector used for Ethernet network adapters.
  • RJ-11: registered jack 11 is a connector used to plug a telephone into a wall socket.
  • PSTN: public switched telephone network uses copper wires and fiber optics to transmit analog voice data through circuit switching. The initialism is also used interchangeably with plain old telephone service (POTS).
  • Circuit switching refers to the method of establishing a circuit when a call is made.
  • PBX: private branch exchange pertains to a telephone system within a company, allowing people to communicate internally and externally.
  • Packet telephony: it is another name for VoIP, which uses packets of data (packet switching) to transmit voice over the internet.
  • SIP: Session Initial Protocol is used for voice and video calls over the internet.

In switching into VoIP, run through these steps:

  • Conduct a network assessment to evaluate
    whether VoIP will add strain to it.
  • Check that your internet bandwidth is adequate
    to support the VoIP calls, and upgrade accordingly.
  • Crunch the numbers for the setup of the VoIP
    system, including the up-front costs and prospects of scalability.

This was a lot to digest, we know! Managing your business involves a
lot more than worrying about your communications platform. There’s literally no end
to the ongoing challenges faced by business stakeholders — technologies, policy
and regulation, and social and political causes can all present formidable challenges.

Against the backdrop of the ever-changing technological tide companies must learn to sink or swim -- to stay ahead of the curve, to make sound decisions, to profit from their efforts. While we wouldn’t fault you for thinking, “I don’t have time for this!”, we would still counsel that developing and executing on a digital communications strategy is something you can’t afford to neglect.

The last step is to choose your VoIP hardware. You will find plenty of them in all forms and functions at Newfangled Networks. We carry a wide assortment of business communications products, including equipment needed for videoconferencing. You are not alone -- we’re here to help!

Make the right call for your business.

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