"Voice over Internet Protocol" (VOIP) is sort of the opposite of modems. A modem takes digital data and transmits it over analog (voice) connections. Internet telephone takes analog data (voice) and transmits it over digital packet switched networks.

Internet telephone is still tricky to set up, and some people have failed to get it to work. Originally, both ends had to have the same software and the same hardware, and the receiving end had to know when the call was coming in. This is rapidly changing as service providers scramble to make it a dial-up service using regular telephones at both end. This service is already available in some cities.

Other problem are transmission speed and voice quality. Voice is very much more time sensitive than data transmission, and the better the quality the more there is to transmit in the same time.

Eventually, the telcos may figure out how to tariff this traffic, so it may not always be as cheap as it is now. On the other hand, it will never be as expensive as long distance because packetized traffic costs less to handle than circuit switched traffic.