An IP telephone lets you make telephone calls over an IP network. It has DSP chips to convert voice to IP packets and IP packets to voice and a standard Ethernet interface to connect to the LAN or WAN devices. A business IP Phone with the enhanced telephony features (such as conferencing, call forwarding etc) is connected to either an IP enabled PBX or a telephony enabled LAN Server or supported by Centrex services provided by a Carrier. Since it can identify itself on the IP network, moving it is as easy as unplugging it from its old location and plugging it in at its new location.

In the telephony enabled LAN system, a call processor plays the role of the traditional PBX and provides the call setup, address translation, routing and supervision functions. An application server usually provides enhanced business features. IP Phones implement H.323 or SIP or both protocols to talk to the PBX or to the call processing server as the case may be.

A Soft phone is a client-side software that turns a desktop PC into an IP-based phone. Most often it offers integration with popular desktop applications, such as Microsoft Outlook.

New classes of IP-enabled wireless phones are emerging. Nokia Corp. for instance has introduced a dual-band cell phone that can function as an IP phone when it senses a wireless LAN. Wireless VoIP IP phones are likely to find acceptance in vertical industries like health care and retail, predicts Chris Kozup, a Meta Group Inc. analyst.

VoIP combined with popular WIFI standards presents new areas of opportunities for ubiquitous communications combining voice and data over the wireless IP networks. Software vendors and PDA manufacturers are feverishly working to provide a softphone application so consumers can use their PDA to make calls over 802.11 wireless LANs.

Then there are web based Phone client applications such as WebPhone, Skype phone client, Att callvantage client, BT phone client etc.

With IP Phones, people on both sides can exchange voice as well as documents, images or video thus increasing productivity and making it easy to collaborate with people at different locations.

VoIP phones are coming close to realizing a holy grail of the telecommunications industry, a concept known as presence management - knowing where people are on a network and how they want their communications delivered. Users can, for example, tell the network whether they want to be contacted by voice, email, instant messaging or have all calls diverted to voicemail. When the calling party dials the number, the rules then divert the call to the selected destination. For example, rather than an executive returning from meetings to a full voicemail box, messages could have been converted to text and sent to his or her mobile phone.