The next step for telephony...
It's short for Voice over Internet Protocol.
And what is that exactly?
It's the practice of using the internet - instead of standard telephone lines - to carry voice communications. It's also called internet telephony or IP telephony. Using VoIP, when you speak, your voice is converted into data packets that can be routed over the internet just like an email or any other kind of data.
You're talking about Skype, right?
Skype is one popular VoIP download, but the technology takes many forms. The first is software such as Skype, which essentially turns your PC into a phone. You and the person you're talking to must both use the software and plug a headset or special USB phone into your computer. The second option is plugging your phone into a sort of gateway that then plugs into your broadband modem. This allows you to talk on an ordinary phone and to call people who don't have a VoIP set up at great discounts. The final option is for businesses, which can use use VoIP for all calls within the company network, and then once calls go outside the company, they can be routed over the internet or over standard phone lines.
OK. Why should I care?
The first reason is cost. Just like it doesn't cost you anything to send an email, VoIP calls are free or extremely cheap, even if you're calling internationally. PC-to-PC calls (your first option above) are often completely free. Calls using a gateway are usually cheap too. However, as with standard phone service, different companies offer different rates, so you'll need to shop around to find the best plan. The savings are perhaps greatest for businesses with offices around the world, who historically have had to pay the highest rates to call during the day.
I like to save money. Is there anything else to like?
Why, yes. Internet phones offer features standard phones can only dream of. They work closely with your computer, so you could, for example, receive voicemail messages as email attachments or dial numbers by clicking on a name in your address book. You can also set up conference calls easily and cheaply and have calls to a main number ring on several different phones (a handy feature for businesses). In addition, internet phones aren't tied to area codes, meaning you can take your number with you when you move or give customers the ability to reach you at a local number when really your office is located far away.
Sounds too good to be true. What are the downsides?
You give up voice quality, for one. This mainly has to do with the loss of data from compressing the voice packets so they can be sent quickly. VoIP technology has gotten better over the years, and the services offered today generally provide an acceptable level of quality - just don't expect it to be exactly the same as your standard phone. Also, remember, your phone system will be controlled by computers - if the computers crash (as they can do) you can't use the phone. And you do need an always-on broadband net connection to use VoIP at home or at the office.
I'm hooked. How do I get it?
For PC-to-PC calls, all you do is download some software such as Skype, plug in a headset and you're ready to roll. For calls from your phone, you'll need to sign up with a service provider; they'll supply you with all the hardware and software you need. For businesses, it's a project for the IT department - you'll generally need to invest in a system that'll take time to set up and roll out.
So is VoIP gonna take over the phone system?
That's a hard question. Short answer: Not anytime soon. Longer answer: The phone companies are already starting to integrate VoIP into their networks, so any transition to internet telephony will be gradual and transparent to the end user. BT recently announced plans to switch to an all-IP infrastructure by 2008, perhaps the most dramatic commitment to the technology by any major telco. In the end, the standard phone system is a vast infrastructure in which loads of money has been invested - and it does a great job at providing always-on service a high voice quality - so don't expect it to disappear overnight.
Anything else I should be aware of?
The big question mark for VoIP is political. Much has to be worked out about how to regulate it. In the US, the FCC has exempted internet telephony services from the regulations and taxes of the standard phone system, which is part of the reason the calls are so cheap. But time will tell whether the regulators remain so kind to the new technology.