man making call using VoIP phone system

What Is a VoIP Phone System?: What You Need to Know

Nicholas PriceLast updated on June 6, 2024
10 min

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Internet systems are getting faster and better all the time and that makes a VoIP phone system an attractive option for business phone systems. That said, there are still many things to consider when considering switching out your traditional phone system.

How does a VoIP phone system work? What’s involved? A quick overview of the differences, pros and cons, and information about the setups for traditional business systems and VoIP phone systems will answer many lingering questions. Here’s an overview of what to expect.

What Is a VoIP Phone System?

We need to first understand what VoIP is: it refers to voice over internet protocol. Another term for VoIP that you may hear tech people use is IP telephony.

VoIP is a process that makes it possible to transmit voice messages and other types of communication over the internet rather than through an analog phone line. The technology has been around for a while, but it has evolved considerably.

From solutions that mirrored legacy telephone networks, VoIP networks and applications have now grown to facilitate inbound and outbound calling between any kind of domestic or international phone number.

Because of the many advantages VoIP provides, many businesses are switching to it in favor of the plain old telephone service (POTS), also called the public switched telephone network (PSTN).

These phone systems enable VoIP calls, which are internet calls, and other type of communication like text, email, or chat that are transmitted via the internet. VoIP calls can have all the options that office private branch exchange (PBX) systems with multiple phone lines have, such as voicemail, call forwarding, call waiting, caller ID, conference calling, etc.

One of the major benefits of VoIP phone systems is that phone software integrates well with other business applications — for example CRM systems — to give you a single source of customer information.

You don’t have to sacrifice call quality when you use VoIP call technology. VoIP call quality means having clear and continuous calls. To achieve this, you need a strong, stable internet connection, computers, routers, SIP phones, VoIP servers, and VoIP service providers. All of these play a role in VoIP call quality.

How Does a VOIP Phone System Work?

A VoIP phone system converts voice signals into data packets and sends them across the internet via a router. A series of VoIP protocols define the steps and order in which connections are established and maintained. Once the call is connected, the speaker's voice is digitized and compressed into data packets.

These packets are then transported in the form of digital signals over the internet to the other end of the call. Here they are decompressed and converted back into an analog form so the person can hear what was said.

The digital-analog conversions, compression and data transfer happen within seconds thereby allowing a seamless flow of conversation.

The Difference Between a VoIP System and a Telephone Line

Traditional home phone or office line systems (POTS, or PSTN) use hardware that runs the primary rate interface (PRI) on the ISDN network, which refers to a set of communication standards for transmitting voice, video, data, and other network services over PSTN.

A PBX system (private branch exchange) uses traditional phone cables along with a PBX server that’s housed in your office. With a PBX system, you can have more phones than phone lines and the calls between users are free.

VoIP phones transmit voice calls over the internet. There are three varieties of VoIP phones—IP PBX, fully virtual VoIP, and hybrid VoIP phone solutions.

In an IP PBX setup, calls get routed through VoIP networks and the PSTN system. The servers for IP PBX may be hosted onsite, through a telecom provider, or through an internet service provider.

A fully virtual VoIP only uses the internet and phone system software. There’s no need for desk phones, cables, or any other kind of hardware.

A virtual VoIP phone system is also known as a softphone setup. Phone users make and receive calls using a dedicated app on an internet browser on a device like a computer, smartphone, or tablet.

There is also a hybrid phone solution that uses a PRI phone system in conjunction with IP phones.

How to Choose Between the Two

At first glance, it may seem that VoIP is the clear choice over PBX phone systems, but there’s more than meets the eye.

As with any investment in your business, it’s essential to look at all the factors that affect your operation and your budget.

7 phone system considerations

  • Current setup: If your current PBX setup meets your needs, and scaling calling operations isn’t an issue, it may not be cost-effective to change it.

  • Internet reliability: PBX systems operate partially through phone lines, so you’ll still have communication if there’s an internet failure. If your internet goes down on a VoIP system, you can forward calls to another number and receive them via voicemail, but you won’t be able to call out.

  • Remote teams: PBX systems limit you to onsite calls, and VoIP systems give you the ability to set up remote workers, remote call center teams, and distributed teams.

  • Cost: You’ll have lower monthly fees for PBX systems, but you’ll pay more for cable installation, equipment, and maintenance. With VoIP, you’ll pay fixed monthly subscription fees and there’s no cost for calls or equipment.

  • Features: With PBX, the phone system only has a few features like caller ID, call waiting, call transferring, and voicemail. With VoIP, you get all the same features as a PBX system and additional features like call queueing, call recording, call whispering, call routing, and you can use it with your CRM system and other software integrations.

  • Sound quality: PBX systems tend to have good sound quality because it travels along landlines. IP PBX systems may have issues if the internet signal is weak. A VoIP system has good quality as long as the internet connection is strong. Fiber optic cables typically ensure good call quality.

  • Availability: It’s rare for companies to install a new PBX system due to the equipment and installation costs. With VoIP, you can quickly and easily set up a phone system as long as you have a stable internet connection.

The Pros & Cons of VoIP Systems

VoIP systems have some big advantages over PBX systems, though they’re not always the best for every company. Here’s a more in-depth look at the advantages and disadvantages of VoIP systems.

Advantages of a VoIP System

  • Lower overall costs—essentially just the subscription costs

  • Portable—keep the same phone number when you move or switch phones

  • Basic features and ability to use it with your CRM and other software integrations

  • Can use multiple channels at the same time-phone, chat, text, sending documents, etc.

  • Amenable to using remote teams without extra cost

  • No long-distance fees

  • Can add and delete lines quickly and easily

Disadvantages of a VoIP System

  • Need a strong, consistent internet connection to prevent latency and jitter

  • Need adequate bandwidth for good call quality

  • Small risk of decreased voice and call quality

  • Devices need a sustained power source—charged batteries or direct plug in to an outlet

VoIP phone system features

  • Toll-free numbers: Subscribing to a VoIP phone service usually gives you a virtual phone number linked to your account. A VoIP provider like Aircall also gives you the option of availing toll-free numbers.

  • Business phone app: This number can be used to handle calls through any mobile device connected to the internet and the VoIP application.

  • Business text messaging: Along with regular voice calling, VoIP solutions support SMS and MMS for businesses. The system can be integrated with your existing CRM application and other tools to streamline operations.

  • IVR: Incoming calls are automatically answered, routed through a custom IVR and placed in a call queue. The hold music can be customized to a brand jingle or promotional message. Calls may also be forwarded from one user to another or transferred between teams.

  • Call recording: VoIP subscriptions may also include advanced features like call recording. This is supplemented by live call monitoring features in the form of call whispering and call takeovers for better customer service.

  • AI transcription: The evolution of AI in VoIP solutions enables features like live call transcripts, voicemail transcripts, call summaries and key topic recognition.

What’s the Cost of a VOIP Phone System

Cost savings are one of the primary reasons for small businesses to use VoIP phone services. VoIP services are typically available in the form of a monthly/annual subscription

This fee is usually inclusive of unlimited domestic calling. International calls are billed additionally on a location-specific per-minute rate. This rate is normally much lower than the call rates offered by traditional landline phone service providers. 

When to Consider Switching to a VoIP Phone System

If you’re considering switching to a VoIP phone system, it means that you’re questioning two things—whether your current phone system is working well enough for you today and whether you’re missing out on a phone system that will help you take your business to the next level.

It’s time to consider switching to a VoIP phone system when:

  • You’re spending too much on our PBX repairs, maintenance, and IT staff.

  • You can budget for phone expenses better if you had a fixed subscription cost.

  • You’re at a point where you need to have mobility.

  • You could be more efficient if your CRM worked with your phone system.

  • It’s time to start using call center software.

  • You’d like your phone to be able to ring on multiple devices at the same time.

  • It would help your business if you could use national or international phone numbers.

  • You’d like to start using distributed teams.

Choosing the Right VoIP Phone Service

It’s always nice to have options. Your goals, activities, and vision for your future should guide your decision around choosing the right VoIP phone service. Considering the affordability of VoIP phone options, cost is the least of the variables.

These are the considerations that should help you make up your mind:

  • Current arrangement: Are you a startup that hasn’t chosen a phone system yet? Have you decided to upgrade your current phone system from a PBX system? Can you transition to a virtual setup smoothly?

  • Call volume: If your inbound and outbound call volume is minimal and you already have a PBX system that works well, it may not be worthwhile to make a switch. If your call volume is heavy and you have or need a call center, it’s time to move to VoIP.

  • Scalability: Seasonal businesses will benefit from a VoIP phone system where they can add lines during peak seasons without added time or expense.

  • Budget: PBX systems have high upfront costs, as well as ongoing costs for repairs and IT maintenance costs, and an IP PBX can be just as much. Virtual solutions are easier on your budget overall.

  • Employee adaptability: We are all creatures of habit. If your employees are resistant to learning how to use all the features and tools that a VoIP system can give you, you won’t get the full benefit of them. If you’ve been considering allowing your employees to work remotely as necessary and they’re willing to get on board with virtual calling, a VoIP system is your best bet.

  • Features: A VoIP system gives you nearly limitless features. What’s more, a VoIP system will respond to future innovations. Also, a VoIP system works with other business software. Features are very limited with a PBX system.

VoIP Migration

When you’re ready to migrate to a VoIP system, you’ll need to prepare for it. When you use a reliable VoIP service provider and plan ahead for the change, the process will be easier. Here’s how to prepare for the transition.

  1. Evaluate your current network: Be sure that your current network can handle the voice traffic and maintain high call quality. Check to see that voice is optimized on your router.

  2. Use a reputable VoIP service provider: Be sure they know your needs and what you hope to accomplish. They should be able to see the process through from start to finish.

  3. Map out a migration plan: Schedule time with your VoIP service provider to map out the migration plan and understand how, if, and when the transition might interrupt your business operation.

  4. Train workers: Hold a training session for your worker and network administrator so they’re ready to use the system as soon as it’s up and running.

  5. Test the system: Before you dispose of your PBX system completely, run a test on the new system, and make sure everything works properly.

Technical Requirements for VoIP Phone Systems

A VoIP phone system requires you to build an infrastructure that has specific technical components.

These things are part of a successful VoIP infrastructure:

  • Hardware: Router, VoIP adapter, phone equipment, and headsets.

  • Internet connection: A reliable internet, preferably using fiber optic cables.

  • Bandwidth: Test your system to ensure it has enough bandwidth for your call volume.

  • Software: Applications, integrations, and a cloud-based phone system.

Each of your devices should have at least 100 kbps upload speed available. Connections should have less than 70ms ping and jitter and that will prevent problems with latency and stability.


You’ll need to tend to some details when installing a VoIP system, but none of them are terribly difficult or time-consuming. The following four steps are the main bases you’ll need to cover.

  1. Designate administrators – Assign one or more employees to control your phone’s system and settings. Everyone needs to know who to go to for questions and solve problems.

  2. Create Voicemails and IVRs – An IVR is an interactive voice response system. Administrators will need to set it up to route your calls. Admins will also need to create a professional, yet personal voicemail message to greet your customers.

  3. Set calling hours – Set your phone system up so that it rings during your normal business hours on all extensions and at all locations. It seems like a basic step, but don’t overlook it and risk upsetting customers.

  4. Integrate with other workflows – Connect your phone with your other communication tools. This is the exciting part of using VoIP! Once you integrate your other business tools, it automatically updates across teams and that means your customers get better service.


You’ll be delighted when you experience how VoIP integrations will enhance your team’s performance. They’re inexpensive, easy to install, and easy to use. Aircall’s App Marketplace lists a host of valuable apps and you may be using some of them already.

These are just a few of the business functions you may want to integrate:

  • CRM

  • AI and transcription

  • SMS/text or chat

  • Sales

  • Helpdesk

Best Practices for VoIP Performance Management

These industry-leading best practices for VoIP performance management will help you get your VoIP system up and running smoothly:

  1. Verify your network’s stability.

  2. Test your devices, headsets, and network.

  3. Check firewalls for a clear flow of traffic.

  4. Make sure you have quality network cables for all devices.

  5. Put VoIP phones on your network into their own Virtual Local Area Network (VLAN).

  6. Ensure that incoming calls ring and don’t go to voicemail.

  7. Prioritize SIP traffic with QoS on your router.

  8. Test your system for appropriate data speed (ping).

  9. Test your system for variations in response time (jitter).

  10. Choose a reputable VoIP phone system provider with a proven track record.

Aircall offers a free trial to help guide you through the process of getting acquainted with the many valuable benefits that you get with a VoIP system.

Many of the past problems with the call quality of VoIP phone systems have been worked out over time.

Aircall uses a market-leading infrastructure and partners with local providers in select markets to ensure excellent call quality and a smooth transition to VoIP. Our specialists will answer your questions and help you have a comfort level with the system shortly after install.

Published on September 30, 2020.

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