VoIP uses the Internet's packet switching properties to allow a person to make and receive calls. This system has many benefits in comparison to a conventional telephone that uses circuit switching. The space occupied by a call in circuit switching can accommodate many calls when using packet switching.

For example, if you make a call that lasts 10 minutes on a PSTN line, the transmission is for complete 10 minutes at rate of 128kbps. For the same call duration on VoIP, the transmission time is only 3.5 minutes at a rate of 64kbps. So, the line can be used for another 10 minutes to utilize the full transmission of 128kbps or other calls can occupy the same space. So, this goes to say that approximately 3-4 calls can be fitted in the space used by a call in the conventional telephone line. With compression of data an additional decrease in the space occupied by each call can be accomplished.

VoIP makes use of Packet switching and they function in the following way:

1. As soon as the user picks up the phone to make a call, signals are sent to the ATA which accept it. ATA stands for Analog Telephone Adaptor which is a device that helps in converting signals of analog type to digital type. This helps in connecting the telephone to the computer to make calls through the internet by VoIP mode. From the ATA, the signals are sent through the internet.
2. The ATA will let the user know the existence of an internet connection to make calls with the help of a dial tone.
3. Once the user hears a dial tone he/she can dial the number of the person to whom the call is made. The signals sent will be converted to digital data by the ATA and temporarily stored.
4. Next, the VoIP service provider will be sent a request form through their call process to ensure the vailidity of the data.
5. The call processor of the VoIP service provider will analyze the data sent to it. The call processor is a piece of hardware that runs a database program known as soft switch. These soft switches analyze the data such as the end points of the network, the numbers being used to call and receive and the assigned IP addresses pertaining to the end points.

The soft switches possess information of the database of the user and the phone numbers. If this information is not present, requests are then sent forth to numerous other soft switches until the necessary data is retrieved. Once the user at the other end is found, the information relevant to the other user is gathered by the soft switches. This information will then be forwarded to the soft phone or the IP phone to permit exchange of data between the endpoints.

The conversion of numbers to IP addresses occurs with the help of a soft switch that forms a connection between the two ends. So, if one user is making a call, the signal is transmitted to the other user to receive the call. In effective, soft switches and network devices work together to enable a person to make calls through VoIP.

6. If the person on the other end receives the call, a session is established between the caller and the receiver. The systems of both the person will receive and transmit the signals through data packets and will manage the call just like sending or receiving any other information on the internet. But, for communication between the systems the protocol of both the systems should be common. There are two recognized channels where one handles direction and the other handles the session.
7. During the sessions when conversation is in progress, the two computers receive and send out data in packets. The incoming packets are transmitted to the ATA which converts the digital signals into analog audio signals that will be heard as voice by the receiving person. There is an open circuit maintained by the ATA with the analog phone to receive analog signals and forward it to the user at the other end as digital signals.
8. If anyone hangs up the phone, the circuit between the phone and the ATA is cut off.
9. The ATA will then communicate with the soft switch through signals to inform that the conversation is completed and the session can be ended. Packet switching enables data networks to communicate with one another.

VoIP has become a very popular means of communication these days due to the advantages it possesses. It is still undergoing lot of fine-tuning and is gaining more popularity by the day and will one day replace the conventional phone altogether.