Maybe you’ve been thinking about upgrading to a new phone system. Maybe you’ve been trying to decide between an on-premise solution and a hosted solution. Maybe you have no idea what I’m even talking about! When you are finished reading this article, hopefully you will not only understand the difference between the two, but you will also be far better equipped to decide which phone system will work best in your particular business environment. Let’s start by getting this out of the way – PBX stands for “private branch exchange.” Don’t ask me why they didn’t decide on “PBE,” but they didn’t. Anyway, PBX is simply another way to say “a phone system.”

Like anything that requires a decision, there are pros and cons to both hosted PBX and on-premise PBX solutions. Even the simplest decisions require weighing the pros and cons. “If I get McDonald’s on the way home, it’ll be quick and easy, it’ll taste good, and it’s cheap (pros), but I’ll hate myself for it (cons); whereas, if I go home and grill some chicken it’ll be much better for me, and it’ll use some of the groceries I bought (pros), but I’ll actually have to cook, it’ll be longer before I eat, and I’ll wish that I had gone to the McDonald’s drive-thru (cons).” What I’m saying is this decision is no different! I know you’re hoping that I’ll ramble on and on about all this phone stuff, but I’m going to try to keep it short(ish) in hopes that you stay with me. So here’s my plan – I’m going to explain what a hosted PBX is and what an on-premise PBX is, then I’m going to have a fancy little chart that compares some of the main features of each, and lastly, I’ll add a little summation to tie it all together. When all is said and done, if you still have questions, or you’re just as confused as you were when I started, you can reach out to us and, rest-assured that, as both an NEC Authorized Partner and Star2Star Authorized Reseller with over 30 years in the telephony business, we’ll be able to help you through the decision-making process. Simple enough? Okay, here we go.

What is a hosted PBX?
Hosted PBX (also known as Hosted VoIP, Cloud Phone System, or Internet Phone System) is a phone system where the provider is responsible for housing the physical PBX, as well as handling the required programming. The phones themselves plug into a network switch at your location, then route out through the internet where the calls and features are processed through a server at the provider’s location. The provider charges a monthly fee that covers a package of minutes for their internet phone lines and any requested features. In some cases, charges are assessed for each call as a per-minute fee. Depending on the rates, either billing plan can be affordable. When exploring this option, it’s helpful to know approximately how many minutes your business spends on the phone.  It is also imperative to assess the health of your internal network and ensure that your internet connection has enough bandwidth and stability to deliver clear, quality phone calls.

What is an on-premise PBX?                                                                                                                                                An on-premise PBX is also known as an IP-PBX or hybrid PBX phone system. It is similar to a traditional PBX system in that it resides at a location, usually in a data closet or equipment room – or sometimes, as we’ve witnessed, in some cold, dark dungeon-like room covered in cobwebs and dust. That’s fine. We don’t judge. Well…maybe a little. With hybrid PBX phone systems, calls can go through traditional analog and digital signals, as well as voice over Internet (VoIP) signals. Hybrid systems are typically very flexible and will have all the traditional features you would expect, as well as all the latest advancements to accelerate your business. The main difference is that with an on-premise PBX, you and your trusted provider (Tech II, for instance) are in control of the equipment’s health, uptime and programming.  Most on-premise solutions also give you choice over how you would like your phones and phone lines to communicate. You may re-use your traditional digital infrastructure, or make use of IP routing using more current technology. If you choose to use IP, signaling is made from an IP phone to the IP-PBX server using your local area network (LAN). You may then choose to have calls go through a traditional phone company using traditional phone lines, or you may choose to use voice over Internet (VoIP) SIP trunks. In any case, you are responsible for the hardware and upkeep of equipment.

I realize that that’s a whole lot of acronyms, so as I promised, here’s a little chart to help you more easily see the difference between a hosted solution and an on-premise solution. Who doesn’t love charts?!

Product Comparison

Feature On Premise Hosted (Cloud)
Total Cost of Ownership Significantly lower monthly cost after initial investment. You should factor in the variable costs of upgrades, service and maintenance. Lower upfront cost with perpetual monthly costs.  Most costs for upgrades, service and maintenance are assumed by the cloud provider.
Flexibility Supports all technology – analog, digital and IP.  If desired, system does not need to be on the network in order to function. Network must be qualified and reliable.  Must be adequate bandwidth in order to have reliable phone calls.
Resiliency Wide variety of phone services can be used – SIP, PRI, POTS and BCP lines. If telephone service goes offline, phone calls can be redirected to back up lines, a different location or cell phone. All services delivered over internet.  If internet goes offline, phone calls may be redirected to back up lines with limited functionality, a different location, cell phone(s) or voicemail.
Internet Requirements Internet not required to function. Internet required in order to function.
Bandwidth Requirements With phone line diversity, bandwidth is not an issue, unless using SIP Trunks. VoIP calls require 100kbps Up and Down per simultaneous call.  Bandwidth capabilities of the network must be analyzed.  Bandwidth reservations recommended.
Voice Quality Depends on the quality of lines coming in from the service provider, which is normally very clear. Depends on the quality of the Internet connection.  Network performance will affect call quality.
Remote Sites

(More than four users)

Additional services and hardware needed.  Significant investments usually required. Remote sites are easy to deploy with just the cost of phones and (possibly) licensing.
Call Control Proprietary telephones which are very flexible and have all the traditional phone functions you would see in a business class phone system. Cloud providers use generic SIP telephones for end users.  Power is in call control software that is loaded on a computer for end users.
System Updates Software updates require vendor or network admin involvement. Updates performed as included service.
Follow-up Service If additional support is needed, it will require an investment. Break/fix support included.  Adds, moves and changes not included and require an investment.
System Growth As you grow, additional hardware and phones may be required. As you grow, additional phones will be required, but you will never outgrow the system.
Third Party Integration You have more control of system integration.  Typically much more flexible with add on features such as call center, integration with internal systems and software and other advanced applications. System integration with 3rd party vendors is limited to the add on features the provider offers.

Of course, in the end, you need to research all of the positives and negatives as they relate to your particular business to determine which system best suits your organization. That being said, Tech II is well-equipped to analyze your current environment and to provide recommendations based upon those findings.

If you would like more information on business telephone systems or on what Tech II Business Services can do for you, give us a call at (518) 587-1565.


  • Daniel Bardin Daniel BardinPublished on June 7th, 2017

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