Declared dead just a few years ago, VOIP—the technology that facilitates Internet telephony—is back with all the signs of the Next Big Thing. And unsurprisingly, VOIP stocks are sky-rocketing. But, the reminiscence suggests that VOIP gold rush is akin to dotcom bubble. VOIP—Voice Over Internet Protocol—the technology that enables making phone calls over the Internet, has been around for years. It was typically used by the companies for cost-effective, internal communication networks. To start with, VOIP uses Internet protocol, the common method of transferring data, for voice as well as data traffic. VOIP changes voice signals into data packets and then transmits them on a wide range of network reaching from the Web to cable to phone lines.

Sending voice traffic in packets instead of routing them through wires offers enormous benefits to both carriers and consumers. Just as it does not matter where the website is located, phone-call origins and destinations also cease to matter. As a result, these Internet calls are a lot cheaper than traditional long-distance calls, as the distance between locations becomes irrelevant. When voice and data travel on the same network, many new features can be added. With such a path-breaking technology, VOIP companies offered phone calls virtually free of cost; as a result, VOIP stocks had started building up popularity during the dotcom bubble of the late 1990s, but then, tumbled along with the meltdown during the bear market.

VOIP was one of the hottest technologies during the dotcom boom. But it failed to become a viable and reliable service. The reasons were twofold. One was that most computers were connected to the Internet over conventional phone lines. These 56K modems did not offer the kind of bandwidth needed for the transmission of voice calls. The other was that making a call over the Internet was free, but, the primitive technology failed to provide a stable and uninterrupted channel required for voice communications. This lowered the quality of the call. VOIP was definitely a disruptive technology but it was primitive and the lack of broadband access (broadband provides the type of bandwidth for smooth and clear transmission of voice calls) limited its potential.