IP Telephony or Voice Over IP (VOIP) refers to carrying voice data over a TCP/IP network in such a way that you either mimic the standard telephone system, or to actually interface with it. IP Telephony client devices include phones which are intended to work like their traditional counterparts, and software programs for computers which perform the same function. IP Telephony devices generally are connected to an ethernet-based network, usually via 10baseT or 100baseT.

The worldwide telephone network is a packet switching network*, whose design can be said to have given birth to the internet, in a way, which is also a packet switching network, meaning that large blocks of information (or data) are broken up into smaller pieces, generally called packets. Both the phone system and the internet rely on the concept of routing, in connections to different systems are sent to other systems for re-routing, until they arrive at their destination. In the ordinary phone system, your phone is only a terminal, little more than a microphone, speaker, and a tone generator. The phone company's equipment handles breaking your message up into packets and sending them along. In an IP Telephony system, the phone inherently sends packetized data to the destination, or to a system which will convert it back to a POTS (Plain-Old Telephone System) signal for absorption back into the legacy phone system.

Major players in the networking arena have IP Telephony products either on the market or in the works, including Cisco, 3Com, and Lucent.

Generally speaking, IP Telephony systems access the outside world of the ordinary telephone system through an intelligent, network-connected PBX. This system will be connected to the phone company via one or more trunk lines, each of which carries one or more phone conversation(s).

The implications are not lost on any of the major players in the internet access, telephone service, networking hardware, or telephony hardware markets. The ongoing and wearying battle between the Bell companies which own nearly all of the copper run to residential facilities, and in fact many if not most of the poles that feed it, and the smaller would-be phone companies and long distance services which would like to provide local phone service, may be nearly at an end. AT&T in particular would like to be able to provide you cable internet, cable television, and local and long distance telephone service, all on the same piece of coax, bypassing the local Bell entirely - But they are hardly the only people to have considered this. AT&T has more recently sold their cable broadband service to Mediacom, which company also has their eye on IP Telephony. (Meanwhile, the Bell systems are talking about providing Video on Demand via high-speed DSL and wireless internet service.)

IP Telephony devices are currently significantly expensive, but in areas where one already has a high-speed internet connection, they can provide a phone line with no usage costs or long distance fees. An IP PBX is installed at the main office, feeding into one or more extension lines on the office PBX, which then become the IP PBX's trunk line(s). Your IP Telephone can then be treated as if it were simply another phone plugged into the POTS network at the office - Even though it may be on the other side of the world. They also allow you to use a single network for both voice and data, and finally, you never have to worry about moving phone lines, because every ethernet device has its own hardware address, known as the MAC.**

* While local phone calls are circuit switched, meaning that they provide or emulate a more or less continuous connection via copper from one station to another, nearly all long distance calls are now packet-switched and in fact are often transmitted via IP networks.
** Many (if not most) ethernet devices feature a software-programmable MAC address. Its use is relatively minimal so it is unlikely to cause problems with this practice within an individual organization.