The usual perception is that VoIP costs so little because everything costs less on the net. There’s fierce competition, and very low overheads etc. However you need to take into account the history of the telecommunication companies and how they relate to computer networks, and the way data actually gets around the net. An understanding of this is necessary to fully comprehend the mystery behind the VoIP vs. POTS pricing structure.

In the days before computer networks were pre-eminent telcos were using digital communication. At the start the very first digital voice circuit was used in Chicago in 1962 however ARPANET, the forerunner to today’s Internet, wasn’t in operation until 1969. The telecommunication companies used these digital circuits to make lots of voice connections over long distances something that analogue circuits did not have the capacity to do and they continue to use them for this purpose today.

Voice communication has a few unique characteristics. For one thing, it’s intrinsically real-time. You’d get annoyed if phone calls consisted of long periods of silence followed by several seconds of high-speed playback to catch up with the conversation on the other end. To keep this from happening digital voice circuits provide guaranteed Quality of Service (QoS). Once a connection is made, you’ll always get exactly the amount of bandwidth you need. It’s not just bandwidth though; latency is also taken care of by using small, fixed sized data packets. Essentially the infrastructure was specially designed to facilitate voice communication.

When computer networks began popping up in the late 1980s) the {telecommunication companies wanted in. They already had the infrastructure in place so they began looking at how they could send data over their existing phone lines. They came up with numerous technologies with different levels of success. But there was (and still is) an issue: data networks are essentially different from voice networks.

Data is transferred in packets, which can arrive out of order a long time after they’re requested, without causing problems. Internet Protocol (IP) was designed to provide best effort delivery. Telecoms companies had an expensive network in place, so there was a lot of incentive to use it. After a few misses Asynchronous Transfer Mode (ATM) was created as a compromise technology that could carry both voice and data. However it’s much less efficient than a network intended purely for data. The overhead for data transfers on ATM is more than 10connection, compared to about one percent for an Ethernet running full-throttle.