Internet telephony: Talk is cheap

Voice over IP is a technology for making phones calls using the Internet Protocol, the world's most popular method for sending data from one computer to another.

VoIP requires a network connection and a PC with a speaker and a microphone, or a device to convert a telephone's analog signal into IP and vice versa.

After years of overpromising and underdelivering, VoIP is generating significant interest among telecom carriers, corporations and consumers, thanks to significant improvements in quality of service.

VoIP is already being embraced by carriers as a way to cut traffic costs on international and long-distance calls, and it is expected eventually to replace the public switched telephone network as big phone companies convert to IP-based fiber-optic networks. Currently, about 10 percent of all voice traffic is classified as VoIP, although fewer than 1 percent of those calls are initiated on a VoIP phone.

Internet telephony services for now typically promise buyers of telephone service a smaller phone bill, virtually wiping out charges for long-distance and international calls. In addition, connecting phone calls over the Internet opens the door to advanced communications services that tie voice together with e-mail, instant messaging and videoconferencing--something that Microsoft and others are already working to achieve.

Businesses weighing whether to switch to VoIP systems must factor in installation costs, which typically run higher than those for traditional phone lines. But they promise significant savings over the long haul because they can be managed more effectively. VoIP also provides, at no cost, services such as caller ID that are usually considered premium.

VoIP is also slowly gaining attention from consumers, thanks to sharp growth in broadband connections to the home, quality-of-service improvements and hookups that allow VoIP calls over ordinary telephone handsets rather than clunky PC microphone systems. Broadband providers, particularly cable companies, are expected to be among the biggest winners if ordinary consumers switch from traditional phone to VoIP service.