The early form of internet telephony was little more than faint voices echoing across two linked computers with microphones attached.

Voice calls were transmitted in digital form as data packets, rather than in the traditional circuit protocols of the public switched telephone network. Its advantage was that users avoided the tolls charged by ordinary telephone service.

In recent years, VoIP has received support from organised efforts to adopt sound, fixed-line quality standards for IP telephony. This has put the technology at a stage where its quality of service has considerably improved to result in more apparent cost savings and newer applications.

VoIP now has the potential of being a viable substitute to traditional fixed-telephone network services.

The technology's profile has been raised in Hong Kong because of PCCW's testy response to the VoIP service of City Telecom, which rides piggyback on the Netvigator broadband network.

PCCW, Hong Kong's dominant fixed-line network service operator, first lodged a complaint to the industry regulator against the competition, then, last week, it intensified this campaign by taking a different tack.

Letters were sent out to PCCW's 750,000 broadband subscribers, warning them that installing so-called 'VoIP Broadband Phone Services' that ride on the Netvigator infrastructure could damage the quality of their broadband service.

Similar tactics to discredit the competition might have been heard a decade ago, when the dominant operator lashed out against the inferior quality of callback operators. But it appears that the city's telecommunications regulator is ready to let the customer decide what service is good enough for them.

In a presentation in Germany last week, director general of the Office of the Telecommunication Authority (Ofta) Au Man-ho said: 'The pace of transition to IP-based services should be decided by the market.'

He noted that the choice of technology used for voice services 'should be left to the consumers'.

Although he acknowledged that existing VoIP services varied in quality compared to conventional fixed-telephone network services, Mr Au said Ofta was concerned with better consumer education rather than arbitrary regulation.

Britain's Office of Communications (Ofcom) adopted the same approach last week. Ofcom chief executive Stephen Carter said: 'Broadband voice services are a new and emerging market. Our first task as regulator is to keep out of the way.'

Still, existing VoIP phone services have certain limitations, including variable quality of service, an inability to locate callers on emergency calls and potential disruption from power outages. There are also unanswered questions over what numbers will be allocated and if fixed-line numbers can be readily ported.

Mr Au noted that 'if the IP telephony service is to be marketed as a substitute for public telephone service, there may be some minimum conditions than need to be satisfied to prevent consumer confusion and safeguard public interest'.

Experience elsewhere indicates that VoIP is increasingly popular. In Japan, for instance, half of all broadband-connected households are using internet phones.

Yet according to some analysts, VoIP's take-up in a market already awash with cheap calls is far from certain. Gartner analyst Andrew Chetham said: 'Short term, it will be extremely niche, operating mainly as a second phone line.'

That has not discouraged operators such as City Telecom from making aggressive marketing initiatives. NiQ Lai, City Telecom's director of corporate development, described VoIP as a 'disruptive opportunity'. He said any policy which did not restrict innovation was a positive signal for the market.

'With technological progress there are always legacy casualties - but should we have restricted broadband roll-out to protect dial up?' he asked.

Other operators point to the opportunities outside of the internet voice market.

Peter Wong, chief executive at Hutchison Global Communications, said he could bundle voice, video and other data. 'And if you have a Hutchison 3G phone, you can make video calls from your home phone as well.'

Even cable network operator i-Cable has entered the VoIP market, where it has no pricing restrictions on its VoIP service, or restrictions on bundling.

Garmen Chan, i-Cable vice-president of external affairs, promised that the company 'will offer a 'triple-play' of voice, broadband and television down one pipe'.

Customers will be hoping they also get one bill adding up to substantially less than the voice, cable and TV services currently operated by three companies.

Meanwhile, regulatory restrictions that come with PCCW's classification as a dominant carrier mean that it cannot match cheap VoIP deals or i-Cable bundles.

But VoIP might offer something for PCCW, too.

Mr Au also said new technology may require 'a fundamental review' of existing regulations. This development could, perhaps, open the door for PCCW to join its competitors in the VoIP market.