VoIP (Voice over Internet Protocol) technology uses the Internet to route your phone calls. The "I" in VoIP stands for Internet. Because of this, they are able to offer lower costs or a flat rate for unlimited phone calls for their services.
Some well known VoIP services are: Vonage, Magicjack, Skype, Lingo, 8×8, Teleblend, RingCentral, BroadVoice, ooma, PhonePower, AT&T U-verse Voice, Comcast Digital Voic and others.
Unfortunately, for faxing, the line quality required is often not sufficient to maintain a fax connection.
A fax call has very specific audio signals that changes
thousands of times per second. If any one of these signals
is not received correctly, the fax will not go through. In
a voice call, it is expected that even when your voice is not
reproduced 100%, the other person will still understand you.
VOIP service varies greatly when it comes to faxing. It may work fine for your neighbor with the same service, but not for you. It may work for you only certain times of the day, or to certain phone numbers. It may work great for 6 months and then no faxes can be sent or received for the next 8 months.
Special Tips for Vonage
Some good tips for setting up Vonage for faxing can be found on their site at this link. These tips include dialing *99 before faxing (this can be placed in your Dial Prefix field in the EssentialFax dialing rules, and keeping the transmission speed at 9600 or lower (item # 5 in Essentialfax Preferences). Please note that the *99 trick is only applicable to Vonage.
Vonage also now offers a special VoIP Fax Line" that is optimized for faxing. (we have not tested this service, but it is claimed that it is more suitable for faxing than a regular Vonage line)
Signals from a fax is transmitted as analog sounds through a telephone
line. When using a telephone service that route calls through the
Internet or a digital telephone line, the sound signals must be
converted to digital. The blue line in Figure 1 represents a true
analog sound wave. When converted to digital, only an approximation
of the sound wave can be reproduced. The green bars in Figure 1
shows the digital approximation. The difference between the analog
and digital sound wave is shown in red. Because a true reproduction
cannot be attained from analog to digital and then back from digital
to analog, that is why faxing is unreliable through VoIP or digital
Additional reading:1. This is a bit of a technical article, but it contains some very good tips and information: Faxing over VoIP, the correct configuration settings that you need to make
2. Another good article - less technical :)