The concept of VoIP (Voice over Internet Protocol) originated in about 1995, when hobbyists began to recognize the potential of sending voice data packets over the Internet rather than communicating through standard telephone service. This concept allowed PC users to avoid long distance charges, and it was in 1995 that the first Internet Phone Software appeared. While contemporary VoIP uses a standard telephone hooked up to an Internet connection, early efforts in the history of VoIP required both callers to have a computer equipped with the same software, as well as a sound card and microphone. These early applications of VoIP were marked by poor sound quality and connectivity, but it was a sign that VoIP technology was useful and promising.
VoIP evolved gradually over the next few years, gradually reaching the point where some small companies were able to offer PC to phone service in about 1998. Phone to phone service soon followed, although it was often necessary to use a computer to establish the connection. Like many Internet applications in the late 1990's, early VoIP service relied on advertising sponsorship to subsidize costs, rather than by charging customers for calls. The gradual introduction of broadband Ethernet service allowed for greater call clarity and reduced latency, although calls were still often marred by static or difficulty making connections between the Internet and PSTN (public telephone networks). However, startup VoIP companies were able to offer free calling service to customers from special locations.
The breakthrough in VoIP history came when hardware manufacturers such as Cisco Systems and Nortel started producing VoIP equipment that was capable of switching. What that meant was that functions that previously had to be handled by a computer's CPU, such as "switching" a voice data packet into something that could be read by the PSTN (and vice versa) could now be done by another device, thus making VoIP hardware less computer dependent. Once hardware started becoming more affordable, larger companies were able to implement VoIP on their internal IP networks, and long distance providers even began routing some of the calls on their networks over the Internet.
Since 2000, VoIP usage has expanded dramatically. There are several different technical standards for VoIP data packet transfer and switching and each is supported by at least one major manufacturer - no clear "winner" has yet emerged to adopt the role of a universal standard. While companies often switch to VoIP to save on both long distance and infrastructure costs, VoIP service has also been extended to residential users. In just a few short years, VoIP has gone from being a fringe development to a mainstream alternative to standard telephone service.