What is VoIP? A Beginner's Guide to Cloud Phone Systems
The UK's traditional phone network is shutting down. By January 2027, BT Openreach will have switched off the copper-based PSTN and ISDN lines that millions of businesses still rely on.
If you have a business landline and you have not yet switched to a digital phone system, VoIP is what replaces it. Here is what you need to understand before you make the move.
What is VoIP?
VoIP stands for Voice over Internet Protocol. It is a way of making and receiving phone calls over a broadband connection rather than a traditional copper phone line. Instead of sending your voice through physical wires, VoIP converts it into digital data packets and transmits them over the internet.
The technology is not new. What has changed is that it is now becoming mandatory. Once the PSTN is switched off, calls will only be able to travel over broadband connections. VoIP is how that is made possible.
How does VoIP work?
When you speak into a VoIP-enabled device, your voice is compressed and broken into small parcels of data. Those packets travel across your internet connection to the recipient, where they are reassembled and converted back into sound. The whole process happens in milliseconds.
You do not need specialist equipment to use VoIP. It works across:
- IP desk phones, which look like a traditional phone but connect via ethernet or Wi-Fi
- Softphones, which are apps installed on a laptop, tablet, or mobile
- Existing desk phones, when paired with an adapter
Most businesses opt for a hosted or cloud-based VoIP system, sometimes called a cloud phone system or hosted PBX. With this setup, the phone system itself is managed by a provider in the cloud. There is no on-site hardware to maintain. You pay a monthly subscription per user and access the system through any internet-connected device.
How is VoIP different from a traditional phone line?
Traditional landlines carry voice as an analogue electrical signal along copper wires. The signal travels through a network of physical exchanges all the way to the other end of the call. This is reliable, but it is also expensive to maintain, difficult to scale, and increasingly out of step with how modern businesses work.
VoIP replaces all of that physical infrastructure with your existing broadband connection. The call quality on a stable internet connection is typically indistinguishable from a traditional line. And because the system lives in the cloud rather than a box in your office, your phone number is not tied to a physical location.
The practical difference for most businesses comes down to three things: cost, flexibility, and features.
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What are the benefits of VoIP?
Lower costs
Traditional business phone lines come with line rental, call charges, and maintenance costs. VoIP typically works on a simple per-user monthly fee with inclusive call packages. Internal calls between team members, even across different offices or countries, are usually free. International calls tend to be significantly cheaper.
Flexibility and remote working
Your phone system is no longer tied to a physical office. With a cloud phone system, your team can make and receive calls from anywhere with an internet connection. The office number rings on a mobile app. A colleague working from home has the same extension as they would at their desk.
Scalability
Adding a new team member to a traditional phone system often meant calling an engineer and waiting for a new line. With VoIP, adding a new user typically takes minutes through an online portal. You pay for what you use and scale up or down as your business changes.
Advanced features as standard
Features that used to require expensive hardware are built into most VoIP systems. These typically include:
- Call recording
- Auto-attendant and call menus (IVR)
- Call queuing and routing
- Voicemail to email
- Hunt groups, which ring multiple phones before going to voicemail
- CRM and software integrations
- Video calling and conferencing
Business continuity
Because your phone system lives in the cloud rather than a box in the office, it keeps working even if your premises are unavailable. Calls can be diverted automatically to mobiles or alternative numbers. For businesses where missing calls means missing revenue, this resilience matters.
What do I need to know before switching to VoIP?
VoIP works well for the vast majority of businesses. Before you switch, there are a few practical points worth being aware of.
You need a reliable broadband connection
VoIP call quality depends on the stability of your internet connection. Each active call uses roughly 100 kbps of bandwidth, so on most business broadband connections this is not a limiting factor. If you are unsure whether your connection is up to the task, compare business broadband deals here. A fibre connection is recommended, particularly if your team makes a high volume of simultaneous calls.
Check any devices that rely on a phone line
It is not just your phones that may be affected. Alarm systems, CCTV, door entry, EPOS payment terminals, and lift phones can all run on traditional copper lines. Before switching, take stock of every device in your business that uses a phone line. Each one will need a digital-compatible solution in place before January 2027.
Power cuts affect VoIP differently
Unlike traditional lines, VoIP requires electricity and an active broadband connection to work. In the event of a power cut, calls cannot be made or received unless you have a backup solution such as a 4G or 5G connection. Most providers offer a call divert feature that routes calls to a mobile number automatically if your system goes offline.
You can keep your existing number
Number porting is the process of transferring your existing business phone number to a new provider. Almost all VoIP providers support this, and it is typically handled as part of the switching process. Your number stays the same. Your customers notice nothing.
What is the PSTN switch-off and why does it matter?
The PSTN (Public Switched Telephone Network) is the copper wire infrastructure that has carried UK phone calls for over a century. BT Openreach is retiring it because it is costly to maintain and cannot support modern communication demands. The final switch-off date is 31 January 2027.
Stop Sell rules have already been in effect across the whole of the UK since September 2023. This means no new PSTN-based services can be ordered. If you have not yet moved to a digital phone system, this is not something you can delay indefinitely.
Need more detail on the 2027 deadline, key dates, and which devices are affected? Read the full PSTN switch-off guide.
Quick glossary of VoIP terms
VoIP comes with its share of terminology. Here are the terms you are most likely to encounter.
- PSTN (Public Switched Telephone Network): The traditional copper wire phone network being switched off in January 2027.
- ISDN (Integrated Services Digital Network): A digital upgrade to the PSTN, also being decommissioned.
- PBX (Private Branch Exchange): An internal phone system that manages calls within a business and connects them to external lines.
- Hosted PBX or cloud PBX: A VoIP phone system managed by a provider in the cloud, rather than on your premises.
- SIP (Session Initiation Protocol): The technical standard that most VoIP systems use to initiate and manage calls over the internet.
- SIP Trunking: A way of connecting an existing on-premises phone system to the internet, allowing businesses to use VoIP without replacing all of their current equipment.
- IVR (Interactive Voice Response): An automated call menu that directs callers to the right department or person.
- Softphone: A software application that lets you make VoIP calls from a computer, tablet, or mobile without a physical desk phone.
- SoGEA: Single Order Generic Ethernet Access. A type of broadband connection that does not require a separate phone line, designed to work alongside VoIP.
- Number porting: The process of transferring your existing phone number to a new provider.
Ready to take action?
Understanding what VoIP is and how it works is the first step. The next is finding the right system for your business.
Love Business lets you compare business phone line deals from trusted UK providers, including hosted VoIP packages from BT, Daisy Communications, Virgin Media Business, and more. See what is included, compare pricing, and switch in a few clicks.
If you also need to upgrade your broadband ahead of the switch, compare business broadband deals here.
You are in control.
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Is VoIP reliable enough for business use?
Yes, for the vast majority of businesses. On a stable fibre broadband connection, VoIP call quality is typically indistinguishable from a traditional landline. Most business-grade VoIP providers publish uptime guarantees of 99.9% or higher.
The main variable is your internet connection. A slow or congested connection can cause delays, drop-outs, or reduced audio quality. If your broadband is already under strain, it is worth upgrading before switching your phone system. Each active VoIP call uses roughly 100 kbps, so a business making 10 simultaneous calls needs at least 1 Mbps of reliable upload and download bandwidth dedicated to voice.
Power cuts are the one scenario where VoIP behaves differently from copper lines. A traditional landline can often carry a call during a power outage because it draws a small current from the phone network itself. VoIP cannot. A 4G or 5G backup connection, or call divert to a mobile number, addresses this for most businesses.
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Can I use my existing phone handsets with VoIP?
It depends on the handset. IP phones (designed for internet-based calling) will work with a VoIP system directly. Standard analogue desk phones will not connect to VoIP natively, but they can be used with an Analogue Telephone Adapter (ATA), a small device that converts the analogue signal to digital.
Most businesses switching to a hosted VoIP system choose one of three options: replace handsets with IP phones, use softphone apps on computers and mobiles instead of a physical desk phone, or keep existing handsets with an adapter if the cost of replacement is a concern.
If you have a modern IP-compatible PBX system already installed, SIP Trunking lets you keep that hardware and simply route calls over the internet rather than copper lines.
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How much does VoIP cost for a small business?
Costs vary by provider and the features you need, but hosted VoIP typically works out cheaper than a traditional phone system for most small businesses. A typical hosted VoIP package runs between £8 and £25 per user per month, depending on the call allowance, features included, and the contract length.
There are usually no large upfront costs. Setup fees are often zero or minimal with hosted systems. The main ongoing expense is the monthly per-user subscription. Hardware costs depend on whether you need new IP phones, softphone apps are free to install on devices you already own.
Businesses that switch from traditional lines often see savings on line rental and call charges, particularly for international or high-volume calls.
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Can VoIP calls be recorded?
Yes. Call recording is a standard feature on most business VoIP systems, either included in the base package or available as an add-on. With a traditional phone system, recording typically required dedicated hardware. With hosted VoIP, recordings are stored in the cloud and accessible through your provider's management portal.
Call recording is useful for staff training, dispute resolution, and compliance in regulated industries. Some sectors, including financial services, have specific obligations around call recording that VoIP systems are well-suited to meet.
If you intend to record calls, you are required under UK law to inform callers that the call may be recorded. Most IVR (automated call menu) systems include this as a configurable announcement.
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What is SIP trunking and does my business need it?
SIP trunking is a way of connecting an existing on-premises phone system (PBX) to the internet so that calls travel over broadband rather than copper lines. It is the digital replacement for ISDN lines.
If your business already has a PBX system with a significant investment in hardware and handsets, SIP trunking lets you use VoIP without replacing that equipment. Instead of switching to a fully cloud-hosted system, you keep your existing setup and change only how calls are routed to and from the outside world.
SIP trunking is typically more complex to set up than a hosted VoIP system and requires a compatible PBX. For businesses buying or upgrading their phone system for the first time, a hosted cloud VoIP system is usually simpler and more cost-effective. SIP trunking is best suited to businesses with a substantial existing infrastructure they want to preserve.
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Does VoIP work for businesses with multiple offices or remote teams?
VoIP is particularly well-suited to businesses with more than one location or staff working remotely. Because the phone system lives in the cloud rather than a physical box in a single office, every user connects to the same system regardless of where they are.
A team member in a second office has the same extension as if they were at head office. A remote worker can answer the main business number on their laptop or mobile. Calls between team members on the same system are typically free, regardless of location.
For businesses that have grown to multiple sites or shifted to a hybrid working model, this is one of the most practical reasons to move to VoIP rather than maintain separate phone systems at each location.
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What is the difference between hosted VoIP and non-hosted VoIP?
With hosted VoIP (also called cloud VoIP or cloud PBX), the phone system infrastructure is managed by your provider in the cloud. You access it over your internet connection. There is no on-site server to buy, maintain, or upgrade. This is the most common setup for small and medium-sized businesses because it requires minimal upfront investment and scales easily.
Non-hosted VoIP (also called on-premises VoIP) means the phone system hardware and software sit at your business location. You own and manage the system yourselves. This gives you more control and can work out cheaper over a long time horizon for large organisations with dedicated IT teams. The tradeoff is a significant upfront capital cost and ongoing maintenance responsibility.
For most businesses considering VoIP for the first time, hosted VoIP is the simpler and more cost-effective starting point.