How does IP telephony differ from traditional telephony?

The traditional telephone experience, with the good old dial tone, is based on circuit switching. You pick up the phone, you get a dial tone, you dial the phone number, the other person hears a ring and picks up the phone, and a circuit connection, enabled over the carrier's network, is made on both ends. Then you talk. The decades-old system behind this form of communication is called the Public Switched Telephone Network (PSTN).

With VoIP and IP telephony, circuit switching is replaced with packet switching, and the "public" system enabling the transfer of the packets and the communication is the Internet. Because the dial tone has become so pervasive and dependable, VoIP systems have their work cut out for them. For example, if there's a power outage, you can't make VoIP calls unless you have a backup generator—one reason why many companies that have deployed VoIP systems still have analog lines for emergencies. Another difference is that the quality of your VoIP call largely depends on the quality of the network and speed of the Internet connection on which you are sending your digitized voice signals.

In terms of appearance, there's little difference between a 21st-century phone found in any businessperson's office today versus a VoIP phone. The main technical dissimilarity between the two is that a VoIP phone has an Ethernet port, and a standard telephone does not. According to In-Stat predictions, total IP phone shipments will grow from 10 million units in 2006 to 164 million units in 2010.

What are the advantages of VoIP?

Many organizations found that they can shave a lot of money off their monthly telecom expenses, for several reasons. The first, and probably the most talked about, is that with a VoIP system, organizations can save money on long-distance calls and those made on a WAN between intra-office staffers who work in dispersed locations.

The second reason is that organizations can reap savings by having data and voice traffic on one network, rather than having to manage and pay for separate data and voice lines. This makes network management, and telephony system updates and upgrades easier. With a centrally controlled IP telephony system, any changes network administrators have to make to the telephone system, such as adding a new employee, or when an employee moves seats, is much easier—there's no back-office wiring closet to visit or complex reprogramming of phones. Changes are made through a simple Web-based application.

Another purported benefit is new and more responsive forms of customer service. For example, "click to talk" (or "click to connect") has become a popular option for online retailers with hefty customer service operations. With click to talk, online customers who want to speak with a live customer service representative can click on a hyperlink and be connected (via VoIP) with the most appropriate rep for some human-to-human contact. For more on the advantages of VoIP, read "Is It Time To Connect VoIP Into Your IT/Business Strategy?"

All of these potential savings are critical for 21st-century organizations. That's because total telecom expenses, which in many companies are now IT's problem, are huge. According to Aberdeen Group, the average Fortune 500 company spends $116 million each year on telecom services (for mid-market enterprises, it's $26 million), and telecom costs, as a whole, have jumped into the top three line items for most companies. With VoIP implementations, many CIOs claim monthly savings of anywhere from $1,000 to more than a million dollars in the largest of enterprises that have heavy-duty call center operations or lots of geographically separated divisions that need to communicate via long-distance phone calls.