PBX Versus Hosted VoIP

Internet based phone service has become very popular over the last decade. Businesses are realizing that they can save a great deal of money using a hosted PBX phone systems as an alternative to a traditional on-premise PBX (Private Branch eXchange). These two phone systems share many of the same qualities, but it is important to understand that even with all of the similarities, there are some striking differences. In this article we will touch on some of the main differences and present a couple of options you may not have considered yet.

System Costs

The first difference between the two has to do with up-front costs. An on-premise PBX can cost thousands of dollars in capital costs because you have to purchase the hardware, software, licenses, maintenance contracts and much more. A hosted system, on the other hand, resides in the cloud and is handled by the hosted provider. Therefore the only up front costs are the IP phones you will need.

When it comes to ongoing costs, VoIP is significantly cheaper than a traditional PBX. That is because your calls are sent across the Internet rather than the Public Switched Telephone Network (PSTN). The Internet is not heavily regulated and taxed like the PSTN hence the savings for long distance calls. In fact, when you sign up for a VoIP plan often you have unlimited long distance calls built into the plan. As a side note, this is rarely unlimited, usually there is a "reasonable usage" limit written into the terms of service but it is often upwards of 2000 minutes per month. We have seen monthly savings to be as high as 80% with a VoIP plan.


Installation requirements vary considerable when comparing a traditional PBX and VoIP. A PBX is located on-site and involves the installation of hardware and software. It also has to be connected to all of the analog phone lines in your company and to the PSTN. These are hard wired and not portable. A team has to be trained on using the PBX and there will be expensive contracts in place for upgrades and maintenance.

A hosted service on the other hand, is easy to setup because the routing hardware and software resides in the cloud at your providers data center, it is a digital technology that uses the Internet for routing so the entire service can reside in the cloud. One great advantage of a hosted service is that it can be self-managed through a secure web portal making adding extensions, setting up features and the likes very simple indeed. Additionally, because the system is digital and uses standard Internet connections, it is highly portable. Moving your phone is as simple as unplugging and carrying it to another location - no re-wiring is required.

An on-premise system is much more complex, which is why the setup is more extensive. However, some larger companies prefer to be responsible for their own communication needs and have in-house expertise to handle the PBX.


A traditional on-premise system is perceived for being loaded down with features, and indeed it is. However in reality a hosted service has all of the same features an on-premise system has, plus more, for example:

Another Option - IP-PBX and SIP Trunking

For larger businesses that want to self host their communications system but also want to enjoy the savings that Internet based calls brings to the table, there are a couple of other options to consider.

For starters, you could replace your legacy PBX with an IP-PBX, a digital IP based system. This can handle all of your business telephony needs and for calls to the outside world sign up with a SIP Trunking provider who will route all of your calls across the Internet and to the PSTN. One advantage here is that all internal calls are free, even between branches in different geographical regions - the phones are all mapped and routed using the PBX software. A hosted system uses minutes even if the call is internal between extensions as it always must be routed by the hosted provider in the cloud. In the case of an IP-PBX, internal calls stay within the company's Local Area Network (LAN).

An IP PBX is relatively inexpensive these days and thanks to the wonders of open-source platforms, you can set up a system using a fairly basic computer, performance wise. Install open-source software, such as Asterisk, onto the computer and have your phone system up and running in a couple of hours. If you have some technical capabilities, follow some of our IP PBX guides and try setting up your own system.

Many large Corporations are reluctant to throw away their analog PBX and replace it with an IP-PBX because of the high investment they have made over the years. However, such businesses can still enjoy the savings of VoIP. By installing a gateway device next to their analog PBX it will convert all of the analog lines into the digital world and then send them to a SIP provider, to route all calls in a similar manner to the IP PBX. The advantage here is that nothing changes inside the business. All of the phone lines behave as they always have done, but huge savings can be realized on external calls, since they will be sent via the SIP protocol over the Internet rather than the PSTN.


In this article we outlined some of the key differences between a traditional analog on-premise PBX and a hosted VoIP based system. Very few companies run traditional PBXs these days and if they do, they will typically add a VoIP gateway in order to take advantage of the SIP protocol and save money on long distance calls.

An IP-PBX is a good option for larger businesses, perhaps larger than 200 phone lines, and some options to consider were highlighted in this article. A hosted VoIP service will usually be best for all other companies in the SMB space and will usually deliver large savings. If you take advantage of all the features on offer, it may also enhance your workforce productivity, due to integration with other applications such as email clients and CRMs.

In our comparison table below you will see some of the most popular providers of hosted phone service.

Provider* Highlights Startup Reviews More Info
  • Top Rated Customer Service
  • Unlimited Calls, Easy to Use
  • 35+ Features, No Contracts
  • Dedicated Support Person
Free Trial 4.9

Read Reviews
  • Includes Phones on Select Plans
  • Outstanding Reliability
  • Incredible Features
Cancel Anytime 4.8

Read Reviews
  • Free Phones with sign-up
  • No Contract, No Commitment
  • USA Based Customer Support
  • Plans from $14.99/mo
Free Trial 4.9

Read Reviews

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