How to ring up savings from the internet phone revolution

James Daley says new online technology could help millions of people to slash their home telephone bills

With companies such as Google and BT involved, "voice over internet protocol" (Voip) services are about to turn the home telephones market on its head. Voip technology emerged several years ago when Scandinavian duo Niklas Zennstrom and Janus Friis joined forces to create Skype. The concept was simple: with millions of people already communicating for free via the internet, using e-mail and instant messenger services, Zennstrom and Friis realised it would not be too difficult to stretch this technology to allow people to speak to each other.

Skype invented a platform that allowed any two users of its software to speak to each other for free, using a simple broadband internet connection - wherever they were in the world. Since then, the technology has moved on to allow people to make calls to traditional land lines or mobile phones from their computer - and although this comes at a price, it tends to be cheaper than using a traditional land line.

BT was keen not to miss out on a development that could ultimately spell the end for its core home phone business. It therefore teamed up with internet portal Yahoo! to launch a service.

Gavin Patterson, group managing director of BT's consumer division, says: "We think it's going to be a very big and interesting area - that's why we've quickly gone to embrace it. We don't so much see it as a threat, more as an opportunity for BT."

Voip is a more efficient way to make a call. There's no need to make a physical connection. Instead, the call is broken down into small data packages. But it's important that those packages are reassembled perfectly and without any delay - so quality is always going to be a factor.

Critics of Voip say the issue of sound quality remains a problem. Another hitch is that if you rely on your internet for your phone calls, then a failure in your connection could see you left with no means of making a call.

"There are still some problems with Voip," concedes Patterson. "There's been quite a furore over 999 calls, for example. But this is why, at the moment, we see it very much as a second line for people. That's not to say the glitches won't be ironed out."

Vonage is the only service from which you can make emergency 999 calls - and, as Patterson points out, even calls from a Vonage line will not be able to be traced to a specific location if the caller is unable to continue speaking. These are problems that the industry is trying to sort out.

Blair Wadman, broadband product manager for Uswitch.com, the independent price comparison website, says that, as a regular user of Voip technology, he has never had any major complaints. "Because it's quite a new technology, some say that the quality is not as good as a normal telephone," he says. "But in our office, all our phones are on Voip and we think it sounds just as good."

To use Voip technology, you have to have a broadband connection. Wadman advises those who are interested in Voip to make sure their broadband package is not too restricted, as many set limits on the amount of content you can download each month - data for phone calls will contribute towards your limit.

The next step is to work out exactly how far you want to go with the new technology. If you are only interested in making the occasional PC-to-PC call, then packages such as Google's Talk and BT's Communicator may be all that you need. These allow computer-to-computer calls to be made for free, and the BT service allows calls to be made to landlines and mobiles for cheaper prices than most telephone providers.

If you want to run all your calls through your broadband connection, Vonage and BT's Broadband Voice services allow you to do that. The advantage with these is that you can keep your new phone number for ever, and be called on it wherever you are in the world, as long as your computer is connected to the internet. With these services you can have your normal telephone handset connected to your computer. However, you will have to pay up to an extra £50 for a "router" to allow you to receive calls when your computer is turned off.

In overall terms, these services are not yet an enormous amount cheaper than switching to a cheap land line provider. Given that you have to have a BT line to be connected to broadband, you will always have at least £10 a month line rental to pay, as well as your broadband fee of £15 or more a month.

In the future, however, Voip will not rely on fixed lines, and is likely to dominate the phone market. Further telecoms deregulation should also bring down the cost of line rental.