VoIP is an acronym for Voice over Internet Protocol. With VoIP, a phone conversation is converted from an analog waveform into digital data packets that are sent over a broadband Internet connection. The packets are reassembled and converted back to sound for the listener at the call's destination.

In the traditional Public Switched Telephone Network (PSTN) a phone call occupies a single circuit between the caller and the person called. In the early days this circuit consisted of a wire from each person's phone to a switchboard at the phone company's central office, where a human operator would connect a wire completing the circuit between the caller and the person called. This arrangement was called "circuit switching." It was a very reliable system because of its simplicity, but it was fairly expensive because each call occupied a single copper wire. Advances in technology were helpful in making the telephone service affordable, but it still relied on the circuit-switched model of one call per circuit.

Much later the Internet was developed to convey information between computers. Information is efficiently carried on the Internet in the form of packets, which are relatively short, self-contained data packages. A packet contains the address of the destination computer, the data to be transferred, and control information like error detection/correction information. The structure of packets and how they convey information is specified in the form of a protocol known as Internet Protocol, or IP, Another protocol, Transmission Control Protocol, used in conjunction with IP form the basis of all data traffic transmitted over the Internet, and is known as TCP/IP.

Apart from ordinary data like email messages and files, the Internet can also carry voice traffic that has been converted to binary data. The electrical signals generated by a person speaking on the telephone must be converted to binary data contained within a packet. This binary-coded voice data can be transmitted over the Internet from sender to receiver as a series of packets. At the destination the packets are turned back into analog signals. This technology was dubbed Voice over Internet Protocol, or VoIP.

Because calls are treated as data, your phone system has the potential for more features than a traditional PBX system. And it is cheaper and more efficient than the old way of allocating a single call to a single copper line as is done in the conventional phone system. This results in reduced costs, better integration of phone services, and less capital investment for your business.