An IP phone is an Internet Protocol phone. It allows the user to communicate over IP networks such as Internet or Intranet connections, rather than using the more traditional phone system. A traditional phone transfers the communicators' voices through a ‘circuit switching' method. In this scenario, the caller and receiver are connected through a continual electrical circuit. Voice transfer using this method is relatively slow as the data is transferred in large amounts in one go, often resulting in a slight sensation of a ‘delay' or even an echo effect. With long distance calls, there is also the problem of call interruption or even disconnection, particularly if the circuit cannot cope with the volume of data being transferred.

The IP phone is different. This system uses a ‘packet switching' system where an analogue voice signal is converted into digital data packets, which are much smaller in size than the more traditional circuit switching packets. These data packets are then sent individually through the Internet to the receiver and reassembled in order and converted back into voice. This has two major advantages. Firstly, it makes the whole process much quicker, with less chance of the datastream failing half way through and breaking the connection. It also makes it much more secure as the individual data packets are not reassembled until they reach their destination, preventing hackers or eavesdroppers from listening in on the conversation or extracting sensitive data.

An IP phone can be used anywhere in the world, as long as you have an Internet connection. This takes away the constraints of the traditional phone and all the receiver needs is a normal phone to accept the call – there is no need for an Internet connection or even a compatible IP phone to be able to receive an IP phone call.

The primary reason that people are now starting to take IP phones seriously is the cost. Voice over IP is considerably cheaper than traditional calls, particularly if you are making long distance calls. Because the use of the Internet connection means that the actual location of the call is untraceable, long distance charges cannot and do not apply. The only additional expenditure is the one-time installation of IP hardware and software to be able to access the system. If you decide to go through a VoIP provider, a capped monthly charge (usually considerably less than conventional landline phone packages) will give you unlimited calls to selected destinations worldwide. Because you are only actually paying for the Internet connection rather than the phone call itself, the end cost is far lower and is particularly useful if you do business with companies abroad or have family and friends overseas.

The only disadvantage of IP phones is that they may not be able to penetrate some Internet firewalls. So if you are planning to make a VoIP call to another IP recipient, it may pay to check via email first that the call will be allowed through your recipient's firewall system. Also remember that IP hardware, working on a domestic power supply, requires some sort of power backup system in case of a power outage (which would instantly disconnect your call). A personal UPS (uninterrupted power supply) may be a worthwhile investment if you intend to use VoIP technology on a frequent basis.