What Is IP Telephony? How It Works & How It Helps Your Business

March 2, 2020 4 min read

Julie Bai

Julie Bai

IP telephony refers to any phone system that uses an internet connection to send and receive voice data. Unlike a regular telephone that uses landlines to transmit analog signals, IP phones connect to the internet via a router and modem.
The first publicly available IP phone arrived on the market as early as 1995. But, compared to a standard phone system,  it had low audio quality and was prohibitively expensive.
Since then, internet-based phone technology has improved by leaps and bounds. IP telephony now offers HD voice quality, cheaper running costs, and advanced business phone features.
And the need for up-front investment is next to nothing.
In this article, we’ll give you a complete breakdown of IP telephony.

How Does IP Telephony Work?

IP telephone systems use the Internet Protocol (IP) or other digital protocols to transfer voice communications over the internet.
If you use an IP PBX system, the data is transferred digitally on a Local Area Network (LAN), and then transformed to analog voice signals and sent to the PSTN.

However, because of high hardware and installation costs, IP PBX is no longer the leading solution.
Hosted VoIP has become the most popular IP telephony solution. It lets businesses take advantage of advanced PBX features without hardware installed on-site.
Here’s a breakdown of how the VoIP system works:
how the VoIP system works
With hosted VoIP, your IP phone sends digital data over the internet to your provider. Your provider handles the routing of calls, call queues, and everything else in the cloud.
You can also use SIP trunking to connect a legacy IP PBX to a modern VoIP provider to take advantage of missing features.

What Is The Difference Between VoIP and IP Telephony?

The terms are often used interchangeably, but there is a subtle difference between them.
IP telephony describes any system that fits within the internet-based telecommunications umbrella, including fax and other systems.
Initially, the term VoIP (Voice over Internet Protocol) was more specific. It only referred to the technology used to make and receive phone calls over the internet.
In recent years, though,  even VoIP providers and telecommunications companies have started to use these terms interchangeably. IP telephony and VoIP both cover phone systems that use a LAN (local area network) to connect to the internet via a modem/router.
Related article: What Is VoIP & How Does It Make Phone Calls?

VoIP Protocols and Audio Codecs

IP telephony relies on a variety of open-source protocols to transfer data from the phone to the service provider.

Here are the three most common:

Which protocols IP telephony uses depends on how your phone system is set up and your VoIP provider.
To effectively send voice data over the internet, you need a way to compress and decompress it. Because phones stream data in real time and the focus is on human voices, they can’t use general codecs like MP3.
Most IP telephony service providers, including Nextiva, use the specialized G.711μ codec — the same as the new digitized PSTN. You can check out our more in-depth guide on VoIP codecs if you’re interested in learning how they affect your call quality.

IP Telephony Benefits for Businesses 

VoIP telephony is taking over the business telecommunications market. Over 79% of US businesses use VoIP phones for at least one location.
Why are so many businesses making the switch? 
There are a few primary benefits.

1. Up to 60% Cheaper than Landlines

For starters, VoIP is significantly cheaper than traditional business plans.
Switching to an unlimited VoIP plan can save you up to 60% over a comparable business landline plan.
Nextiva Basic, for instance, starts at $20/month per line and includes unlimited calling in the US, Canada, and Puerto Rico.

2. More Features Without Extra Hardware

IP telephony also enables your business to access advanced features without having to invest in extra hardware.

For example:

With Nextiva, you can choose advanced enterprise plans that include all our VoIP features or upgrade your plan with the necessities you need.

3. Easy Integration with CRM and Other Business Tools

VoIP also makes it a lot easier to integrate voice communications with your CRM and other business tools.
The ability to centralize data and provide consistent customer service across multiple channels (at a lower cost) makes IP telephony and VoIP a no-brainer for many businesses.

What Do I Need to Use IP Telephony? 

In the early days of VoIP, you would need expensive on-site hardware like VoIP gateways and a PBX server.
But times have changed. With a hosted VoIP service like Nextiva, the requirements are minimal.
In fact, all you need is a reliable internet connection and robust network setup.
To find out if you have a good enough internet connection, you can read more about how much data VoIP uses.

Save Big On Monthly Bills By Switching to VoIP

Want significant cost savings and a new and more multi-line phone system with advanced PBX features?
Here at Nextiva, we pride ourselves on providing tailored solutions to businesses of all sizes. Our small business VoIP starts at $18.95/month per user.
For companies that require unified communications, more advanced features, and dedicated support, our enterprise plans start at $30/month per user.
Our Amazing Service Team will be with you every step of the way and ensure that the switch to VoIP is seamless.

Julie Bai


Julie Bai

Julie Bai was a product manager at Nextiva, UCaaS evangelist, no-bull communicator, and translator for people, dog lover, and mother to an adorably active boy.

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