What is a VoIP Phone and How Does it Work?

VoIP phones provide countless benefits over landlines, including advanced call management features, HD voice quality, and cost savings. VoIP phones are portable, scalable, helpful for remote teams, and easy to set up for companies of any size.

This article will outline VoIP phones, discussing how they work, benefits, features, and the best VoIP phones currently on the market.

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• What is a VoIP Phone?
• How Does a VoIP Phone Work?
• Hosted vs On-Premises VoIP Phone System
• VoIP Phone Features
• Benefits of Using a VoIP Phone
• Best VoIP Phones on the Market
• VoIP Phone FAQs

What is a VoIP Phone?

A VoIP phone is a type of telephone that uses an Internet connection to make and receive calls. Voice over Internet Protocol (VoIP) users make calls through a cloud-based phone system hosted by a VoIP provider. VoIP software applications support telephony, SMS texting, call controls, routing features, and other advanced digital features.

To access these features, users simply log into their VoIP app on an internet-connected device.

The following devices can act as a VoIP phone:

• Mobile devices
• Computers
• Tablets
• VoIP hardware–headsets and desk phones

How Does a VoIP Phone Work? 

VoIP phones work by transmitting voice data via the Internet, instead of the public switched telephone network (PSTN).

Taking a call on a VoIP phone feels just like using a traditional landline PSTN or mobile phone. But behind the scenes, the data transmission is completely different–VoIP service uses the internet to transmit digital data packets from your local network, instead of the PSTN’s analog signal.

VoIP phones convert sounds into digital data packets, which travel via broadband Internet from your local WiFi network to your VoIP phone service provider. Your VoIP service provider then uses an IP PBX (private branch exchange) system for one of two possible next steps:

1. Transmit the digital data over the internet directly to another VoIP provider, who routes it to the recipient

or

2. Convert the digital data into an analog signal for PSTN transmission to a traditional landline phone

Hosted vs On-Premises VoIP Phone System 

Below, we outline the primary methods to set up or host a business VoIP phone system.

Hosted VoIP Phone System 

With a cloud-hosted VoIP phone system, the provider houses all the PBX hardware to convert your digital data into analog PSTN–so you don’t have to worry about storing machinery, connecting cables, or installing updates. Your VoIP carrier hosts the servers and data centers, meaning your company doesn’t need to purchase any hardware. Additionally, VoIP providers audit security and install upgrades to their PBX systems, so hosted PBX saves your IT department a lot of work.

With a hosted PBX setup, all you need is an internet-connected device. VoIP apps offer softphone functionality, enabling agents to use mobile devices and computers as IP phones. If you want a hardware VoIP phone, you can purchase a physical headset or desk phone and connect it to your computer.

On-Premises PBX System (SIP Trunking)

An on-premises PBX system means that your company hosts the VoIP hardware onsite. You manage and update IP PBX servers for the local VoIP network, and connect them to both the internet and the PSTN. Usually, the IP PBX system resides in a designated office or room, with cables linking it to the PSTN, the router or modem, and sometimes to users’ computers and VoIP phones. A technology called SIP Trunking provides virtual phone lines that connect IP PBX to your landline phone system.

While an on-premises VoIP setup provides greater privacy and control over your phone system’s features, its upkeep demands time and attention from your IT staff. Further, hosted PBX systems usually offer many more VoIP phone features than on-premises systems do.

VoIP Phone Features

VoIP phone software applications usually include dozens of built-in features. Here, we’ve outlined some of the advanced digital features you can find in a VoIP phone system.

Digital Interface

Most VoIP phone providers offer mobile and desktop applications with a comprehensive user interface, including an agent and supervisor dashboard that unifies features and settings.

VoIP software dashboards unify the following features:

• One-click communications: Make voice calls with one click from a contact list, dial a contact’s number, and receive inbound calls via screen pop. Agents can send text messages and, if supported by the VoIP app, participate in web chat conversations and video meetings.
• Voicemail: Organize and listen to voicemail messages, with audio transcription
• Contacts: Companies and individuals can organize searchable contact lists. Each entry contains details, notes, and sometimes advanced profiles powered by CRM data
• Administrators controls: Administrators can view analytics, monitor call center activity, set up routing and IVR call flows, and adjust user permissions from a left-hand panel

Call Controls

A VoIP phone system typically supports users with a variety of live call controls, which are accessible on mobile devices and computers:

• Call transfer: Transfer the call to another user within the company
• Call parking: Place the call in a communal parking space, where a teammate can retrieve it
• Call flipping: Switch live calls between devices, such as flipping from a computer to a mobile phone, or vice versa
• Conference calling: Host conference calls with dozens of participants
• Basic call controls: Caller ID, hold, mute, add participants

Routing Features and IVR

VoIP phone solutions often include built-in routing features, which enable administrators to set up custom automatic call distribution (ACD) systems that route inbound calls to the right agent or department within your company.

Common VoIP Phone Routing Tools:

• Interactive voice response (IVR): A self-service menu that provides callers with speech or dial-tone options to navigate to a department, announcement, or submenu. Use a design tool to customize a multi-level IVR menu.
• Call queues: Organize agents into groups, each with an organized hold queue for callers waiting. Each agent in a queue can see the calls waiting, with the option for one-click callbacks.
• Ring groups: Group agents together to share inbound call responsibility, when one receives a call
• Custom ring style: Choose how calls get distributed among ring groups–a recurring order, round-robin, or simultaneous ring

Call Analytics

Advanced VoIP solutions include call analytics, which tracks insights and metrics across your business phone system. Usually reserved for higher-tier pricing plans, these historical and real-time KPI dashboards track data for whole teams or particular users, viewable over custom timeframes.

Third-Party Integrations

Since VoIP phone systems are software-based, they integrate with many popular third-party integrations like CRM systems, business communication platforms, and call centers. In fact, some cloud-hosted PBX providers include hundreds of supported software applications that work cross-functionally with your VoIP system.

• CRM systems: Link customer journey information, purchase history, and other context between your VoIP phone system and CRM apps like HubSpot, Salesforce, SugarCRM, and more
• Communication platforms: Link VoIP and messaging functionality across communication apps like Google Workspace, Microsoft Teams, Asana, and Slack
• Call centers: Link VoIP functionality with call center and customer service platforms like Zendesk, ServiceNow, Zoho, and more

Benefits of Using a VoIP Phone

Here are the key benefits of using a VoIP phone instead of a traditional landline.

Call Quality

VoIP call quality is much better than traditional phone system call quality. Unlike analog calling, VoIP digital data enables HD sound quality through a wideband signal.

To guarantee the best sound quality, make sure you have enough bandwidth for the VoIP data, along with a high-quality VoIP router.

Scalability and a Remote Workforce

VoIP phone systems are a breeze to scale, compared to traditional legacy PBX systems.

To add a new user to your VoIP system, you only need to add a new user to your software subscription and buy another handset–softphone users don’t even need to buy any hardware. Assign phone numbers to new users based anywhere in the world, who only need a laptop or mobile phone to begin making phone calls from your company VoIP number.

Adding new agents to legacy PBX requires purchasing new phones, installing new phone jacks in the walls, and adding new PBX hardware.

Portability

Virtually every VoIP provider supports telephone via both desktop and mobile apps. This means employees can accomplish more while on the go. Many platforms have a Call Flip feature, which allows users to switch from desk phone to smartphone without ending the call, improving customer support.

Security

VoIP technology comes with cutting-edge security protocols that ensure no one can eavesdrop on sensitive calls. Most solutions also have features like two-factor authentication, E2EE (end-to-end encryption), and single-sign-on–which keep unauthorized users out of your communications infrastructure.

Long-Distance Reach

Companies that use VoIP are able to reach more markets without the high overseas calling rates you’d incur on landlines. Most providers offer unlimited calling across the US and Canada, and some specific plans let you extend to other countries.

Even for VoIP plans that don’t include free international calling, the calls are significantly cheaper than with PSTN.

Global Presence

Many VoIP providers offer virtual phone numbers based in area codes around the globe. Purchase toll-free, vanity, and local numbers and assign them to any user within the company.

Advanced Contact Center Features

VoIP phones can integrate with other internet-based call center or unified communications features, like real-time call analytics and omnichannel contact centers.

VoIP solutions meet business needs with advanced features like:

• Call recording, transcription, and voicemail transcription
• Video calls
• Call forwarding and call routing
• Customer data tracking and analysis
• AI-supported auto-attendant
• CRM Integrations

Reduced Cost

VoIP phone systems are far cheaper to run than legacy PBX systems. In fact, factoring in the purchase of new VoIP phones, even small businesses with 30 employees or less will still save up to $1200/month by switching to VoIP service.

Best VoIP Phones on the Market

Below, we’ve listed our picks for the best VoIP desk phones and conference phones currently on the market.

FAQs

A VoIP phone not only saves business costs compared with a landline phone setup, but also adds a ton of other benefits and features. Remote teams, small businesses, and enterprise companies can benefit from the routing features, analytics, and mobility of VoIP.

Agents can use a computer, mobile, or one of the hardware devices listed above as a VoIP phone.

In case you have more questions about VoIP phones, check out the FAQs below.