Online phones use packet-switched VoIP, or Internet telephony to transmit telephone calls over the Internet as opposed to the circuit-switched telephony used by the traditional Public Switched Telephone Network (PSTN). The advantage to online phone calls is that unlike regular long-distance calls, online phone calls are free -- there's no fees beyond the cost of your Internet access.
An online phone can either be a physical telephone with built-in IP technology and an RJ-45 Ethernet connector instead of the RJ-11 phone connector found in standard phones or it can be a VoIP-capable computer that has audio support and a microphone for making and receiving calls. As a result, Internet phone calls can work as Internet phone-to-phone, Internet phone-to-PC, PC-to-PC or PC-to-phone calls.
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