Since the PSTN/ISDN (Public Switched Telephone Network/Integrated Services Digital Network) is designed mainly for voice traffic, it has recently experienced more call blocking due to the explosive growth of Internet calls with a long holding time. In this paper, an "In-Switch Architecture" is proposed for efficiently handling Internet calls in local exchanges, which are the starting-point of network congestion. Originating calls are classified into voice calls and Internet calls according to the translation of terminating numbers. Then, Internet calls are routed to different paths separated from those of voice calls in the proposed architecture. Therefore, Internet traffic does not occupy the resources of voice traffic in local exchanges, and congestion in local exchanges and the PSTN/ISDN due to Internet traffic can be significantly reduced. The result of performance evaluation shows that the higher Internet penetration is, the lower blocking probability of voice calls is. The Quality of Service (QoS) of Internet calls is subject to the capacity of modem pool and processing capability of data processing unit. The proposed In-Switch Architecture has advantages when the Local Exchange Carriers (LECs) accommodate Internet services and Voice over Internet Protocol (VoIP) because of its nature to handle Internet Protocol (IP) datagram.