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VoIP or Voice-Over-Internet-Protocol service refers to the biggest innovation in telephony since the 1950s and has been largely responsible for the great reduction in phone rates we are recently enjoying.
VoIP home phone service works only if you have a broadband Internet connection. It transmits voice signals over the same pipes as data. Voice information is broken down into packets, compressed and transmitted over the Internet or a private digital network along with data. This results in lowered costs that the VoIP phone companies pass on to you.
VoIP central office equipment is also less expensive than traditional telephone equipment.
Because VoIP does not use traditional phone lines, until recently this also meant that VoIP phone services were not subject to the same taxes and surcharges as traditional telephony. Unfortunately, the loss of tax revenues became an issue and this is now changing.