An apparatus and method for effecting sophisticated telephony services using hybrid POTS and VoIP transport without resorting to central servers or PBXs is provided. Key to the system is the use of on-phone processing capabilities comprising several A-D/D-A, memory and addressing, audio-mixing, program memory and programmable computing circuits or components. The system performs required IP and VoIP protocol stacks (UDP, RTP, and SIP for example) and POTS functionality. Optionally, fail-over from set-power may be provided using POTS line voltages.The phones of this invention self-configure dependent upon the network environment to which they are attached, and direct call and other functionality digitally under programmed computing control, thus being highly configurable; redundancy between networked phone devices adds robustness.The telephone system is comprised of independent telephony devices operating on a LAN and/or WAN TCP/IP-based connection The inventive concept allows for greater system scalability with lower cost, reliability and flexibility.