Voice over Internet Protocol (VoIP) transmission began in 1973 as a result of the experimental Network Voice Protocol invented for the ARPANET. However, it wasn’t until 1995 that the first Internet Phone Software – Vocaltec – appeared. Vocaltec brought to market the first internet phone software called the Internet Phone. The Vocaltec software compressed the voice signal, translated it into digital packets, and distributed it over the Internet. The technology solution worked well as long as both the caller and the receiver had the same hardware and software. Although sound quality was poor and nowhere near that of conventional equipment at the time, the effort represented the first IP phone.
Early adopters were largely made up of hobbyists who quickly recognized the potential of transmitting voice data packets over the Web instead of communicating through the traditional telephone companies. Vocaltec was designed to run on a home computer, integrated with sound cards, and microphones and speakers, leveraged the H.323 protocol instead of the SIP protocol that is more popular today and allowed PC users to avoid long distance telephone charges. However, in 1995, broadband Internet connectivity was not nearly as popular to initial industry growth was subdued and later directly influenced by broadband industry growth.
Vocaltec achieved initial success with Internet Phone and launced a successful IPO in 1996. This company delivered the first true VoIP software application and helped lay the groundwork to grow the VoIP industry.
By 1998, VoIP traffic over the Internet had grown to represent about 1% of all voice traffic in the United States. Hobbyists and entrepreneurs were creating new hardware devices and software solutions which enabled computer-to-phone and phone-to-phone connections. Networking manufacturers such as Cisco, 3 Com and Lucent introduced new network hardware that could route and switch the VoIP traffic and as a result by the year 2000, VoIP traffic accounted for more than 3% of all voice traffic in the United States.
In the 1990’s, VoIP services mainly relied upon advertising sponsorship to subsidize costs and attract customers. The gradual introduction of broadband Ethernet technologies delivered greater call clarity and reduced latency. This permitted large technology companies such as Cisco Systems and Nortel to start making VoIP equipment that was capable of switching, therefore functions that had previously been 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 offloaded to another more powerful device. By 2000, VoIP traffic accounted for more than 3% of all voice traffic.
Mass market VoIP telephony began in 2004 with the introduction of VoIP calling plans which permitted subscribers to make calls just as they would with conventional telephone company services. Full service VoIP phone companies provided inbound and outbound calling with Direct Inbound Dialing in mass and with discount pricing plans. Many offered unlimited calling to the United States, with some of the plans offering flat rate calling to Canada or selected countries in the Europe Union or Asia.