David Cheng used to fork over at least $300 a month to his long-distance supplier for calls between the New York office of his restaurant-furnishings business and colleagues and suppliers in China. Now, he calls there more than ever and pays his long-distance service a pittance for the privilege. "It's a very good thing for the business," gloats Cheng.

David's International, Cheng's nine-person company, now routes its China-New York traffic over the Net. Internet telephony, also called Voice Over Internet Protocol (VoIP), reduces the tolls for say -- an extended wrangling session with a Chinese supplier -- to the cost for a one-minute overseas call and his local Internet connection charge.

Cheng's solution to killer long-distance bills is a bit clumsy. Cheng uses a $199 device that connects to a wall jack and a telephone, much as an answering machine does. The device requires more key-punching than an ordinary telephone call. Voices sound a bit tinny and occasionally break up. Also, it only works for calls to people who have the same device. Still, he's relieved to be able to call his key contacts without a second thought about bills. Cheng, who bought five devices for his China office and vendors eight months ago, recouped the investment in about three months.

Internet telephony is often billed as the next big innovation in phone service. But it has hardly posed a threat to conventional phone service because of the equipment needed to get the equivalent quality and convenience. Also, understandably, the long-distance telecom giants are cautious about putting their weight behind an alternative that risks cannibalizing their business. But if you're a small business, it's worth looking at equipment available now for calling over the Internet -- because some of it can significantly reduce long-distance expenditures between branch offices and others in constant contact.

First, a brief lesson in how Internet telephony works and why it's so cheap. Conventional phone systems convert your voice to an electrical signal transmitted over a series of lines and switches. Your conversation ties up the entire line for the duration of your call.

Internet telephony converts your voice into packets of digital data -- just like text or images -- which share the line with other packets of data, a more efficient use of transmission capacity. The voice packets travel over the public Internet or privately owned business networks that use the same network protocol, the Internet Protocol, or IP. Internet transmission is cheap mainly because the capacity is used so much more efficiently than in a conventional phone conversation. Unfortunately, the voice packets face the same delays as Web pages during peak use, making the sounds come out jerky.

THE HIGH END. The best Net phone equipment for small business falls in the middle of a broad range in terms of price and convenience. The cheapest setup is simply too awkward for business use. It requires only an Internet connection, a computer with sound capability, speakers, a microphone, and telephony software such as Microsoft NetMeeting, which comes with Windows. You and the person you're calling must be at the computer -- software loaded -- and connected to the Net. You send a message via the software telling your party you want to talk. If he or she responds, you speak into the microphone.

The omegas of Internet telephony cost tens of thousands of dollars for basic hardware alone, and connection to a company's phone system and private IP network is complex and expensive. The advantages are clear: Private IP networks have fewer slowdowns than the public Internet, so sound quality is high. Such systems can often handle many lines. Some even let you call people who aren't on a VoIP system. But at those prices, the payback period is too long for most small companies.

Small businesses can best benefit from devices that start just under $200. Cheng uses the Aplio/Phone, made by Aplio Inc., which we tried. You connect Aplio/Phone to a wall jack and a telephone. To prepare it for use, you press a button on the front of the unit. Pick up the receiver, and when you hear voice prompts, use the telephone keypad to enter such information as your Internet service provider's phone number and your user name. It took us about 15 minutes to set up.

A call on an Aplio/Phone starts out with a normal phone call to your party, meaning you'll pay for a minute at long-distance rates. While still connected, you press a button on the Aplio unit and an Aplio voice-prompt asks both parties to hang up. Behind the scenes, Aplio connects to your ISP and to the ISP of the person you're calling. Within a minute, phones ring at both ends, and you resume talking.

If you know the party you are calling is online and you know the serial number of that person's Aplio/Phone unit, you can even save the initial toll call by dialing the device's serial number instead of a phone number.

TECH KNOWHOW NEEDED. Inland Associates, a 45-person Kansas-based company that sells computer-related equipment, including VoIP systems, uses a more sophisticated, midrange system called the MultiTech MultiVoIP, which plugs into both a company's PBX phone system and a router or hub that connects a company's local-area network to the Internet. It also only works for calls to people who have the same setup.

Installing this product requires some technical expertise, from in-house staff -- if you have it -- or an outside system integrator. Dan Georgevitch, Inland's manager of technical services, says he can install the $1,500 MultiVoIP in less than an hour. To use MultiVoIP, you dial your long-distance parties as if they were at another office extension. MultiVoIP's technology does have better sound than the Aplio/Phone. We listened in on a couple of calls, and voices sounded only slightly more distant than on an ordinary long-distance call.

Georgevitch's company recently installed MultiVoIP in its five branch offices. "We're cutting our overall phone bill by as much as 30%," he says.

By saving money, Internet telephony fosters communication, claims Cheng. "Before, we'd save up a bunch of things to talk about, then call once, and talk about them all at once," he says. "Now, I get lots of calls every day from China, and we talk in detail."

David Haskin in Madison, Wis.