Hosted PBX is a private branch exchange (PBX) that is “hosted” by a service provider. It's used by companies to make and receive phone calls via the internet and is a popular alternative to traditional PBX, which uses copper wires and landline phones.

Businesses often choose hosted PBX or switch from traditional PBX to hosted PBX as a way to cut costs, get access to telecommunications features, and unify their workforce.

If you’re exploring telecommunications options for your business and think hosted PBX systems might be the way to go, here’s everything you need to know - what they are, their benefits, and why you might want to invest in one yourself.

Before explaining how hosted PBX works, it’s helpful to understand what a PBX system is and what it does. A PBX, or private branch exchange, is a private telephone network that is used within an organization or company.

The system is what allows your company to communicate with others within and outside of your organization, typically using office phones in the case of traditional PBX or via softphones on other devices via the internet in the case of systems powered by Voice over Internet Protocol (VoIP).

Traditional PBX systems are also known as on-premises PBX or analog PBX. These PBX systems work using physical hardware, such as copper telephone wires, and on-site software installed at your company’s office.

When you make a call, your on-premises PBX connects your landline to the Public Switched Telephone Network (PSTN). That system is also known as the Plain Old Telephone Service (POTS).

Hosted PBX sends voice traffic via the internet, usually using VoIP technology. Businesses that use hosted PBX for their communication systems tend to use VoIP phones (also known as IP phones) or softphones rather than traditional desk phones with individual extensions.

The infrastructure of hosted PBX is maintained entirely by the service provider and relies on an internet connection rather than copper wires and the PSTN.

Here are some of the key differences between on-premises traditional PBX and hosted PBX:

Challenges of traditional PBX systems

Traditional PBX systems have been used by businesses for decades, but they come with their limitations, especially when compared to hosted PBX solutions:

• Upkeep and maintenance. One of the biggest challenges of traditional, on-premises PBX systems is that their upkeep and maintenance are entirely managed by the business. This means you will need IT staff with expertise to handle any problems and troubleshooting within your PBX system.
• Basic calling. Traditional PBX systems offer a basic phone call system without all the perks and added features of a hosted PBX. If you want to add features such as auto attendants, greetings and voicemail, or even have conference calling capabilities, you may not be able to do so with a traditional PBX system.
• Limited capacity and scalability. The number of desk phones supported by a traditional PBX system is often limited. This makes them less cost-effective for large businesses, as well as businesses planning on scaling, since the cost of increasing and upgrading the number of phones connected to an on-premises PBX can be expensive.
• Higher setup costs. Setting up a traditional PBX system requires the purchase and installation of various pieces of hardware - not to mention phone lines. This can cost tens of thousands of dollars; so if you’re starting a small business, a traditional PBX system for your office won’t be a cost-effective way to handle communications.
• Limited connection to remote workers. With so many people beginning to favor working remotely and many businesses using mobile workers, communication is increasingly important. A traditional PBX system does not allow on-site employees or telephone systems to automatically route incoming calls to the devices that remote and mobile workers are using.

Hosted PBX uses internet protocol (IP) for communication. Rather than calls being coursed through physical lines, calls are delivered over the IP network. Voice traffic can be transported over the PSTN, over the internet (using VoIP), or a combination of both.

What is a virtual PBX?

Sometimes, “hosted PBX” is used synonymously with “virtual PBX”. This isn’t entirely correct in the technical sense. Virtual PBX systems are a component of hosted PBX. An example of a virtual PBX system might be an auto attendant that provides automated IVR and call routing.

What is the difference between VoIP and hosted PBX?

A hosted PBX is a phone system, whereas VoIP is the method by which you make calls.

Hosted PBX uses VoIP in its operation to make IP calls. VoIP can also be used for other types of telecoms, like video conferencing. Providers of hosted PBX systems are usually VoIP service providers and can offer a range of cloud-based communications for businesses, including what are sometimes known as business VoIP phone systems. Those are holistic systems that combine the functions of PBX with other telephony and communications features.

A hosted PBX can be achieved in your business’s telephony system via one of two avenues. The one you choose mostly depends on what PBX system you already have in place.

If you already have a SIP-enabled IP PBX server, you’ll want to opt for SIP trunking. If not, cloud hosted PBX is the best option for your business.

Cloud PBX

A cloud PBX platform is a popular type of hosted PBX in which all of your business’s VoIP phones are connected to an external cloud system, usually hosted in a VoIP data center provided by a VoIP service provider.

Cloud PBX does not require a physical, on-premises PBX server, and is managed entirely by the provider.

SIP trunking PBX

SIP trunking allows you to connect your current on-premises PBX system to the internet via a SIP trunk.

It also allows you to connect any communications or virtual PBX software you use via the internet to your existing on-premises PBX infrastructure.

SIP trunking is great for businesses with a legacy PBX system in place, especially if you want to gradually phase out your traditional on-premise PBXs for a hosted PBX system replacement. Unlike cloud PBX, SIP trunking often still requires on-site maintenance.

Cloud PBX Vs. SIP trunking

Whether you opt for a cloud PBX system or SIP trunking depends on what systems you already have in place. Here is a rundown of the difference between the two so you can be sure to make the right choice:

More and more businesses are switching from traditional, on-premises PBX to hosted PBX.

From cost savings to increased flexibility, here are the top benefits of hosted PBX that encourage businesses to make the switch and startups to immediately opt for a hosted PBX solution rather than traditional PBX for their telecommunications:

• Low setup costs. Without the up-front expense of hardware, licensing, and setup costs, hosted PBX is far more cost-effective than traditional PBX systems. You only need VoIP phones and software.
• Low operational costs. With traditional PBX systems, you pay for the maximum number of phone lines you need, even if you aren’t always using them. Hosted PBX providers tend to offer a flat per minute or monthly rate and low international rates. You’ll also save on maintenance costs since you won’t need to hire additional IT staff.
• No maintenance or upkeep. Hosted PBX that uses cloud technology doesn't require on-site maintenance or upkeep. This means you can save time and money as problems are dealt with by the service provider rather than your IT staff or administrators.
• No downtime. Hosted PBX uses multiple VoIP data centers. This means that if one data center goes down, your company’s phones will be connected to a different data center - preventing phone service downtime.
• More telephony features. Hosted PBX systems are often feature-rich. While traditional PBX usually only provides basic calling functionality, hosted PBX features can include routing calls and call switching, call queuing, phone menus and IVR, conference calls, voicemails, and call recording.
• Increased scalability. Adding lines and phones to a traditional PBX system can be costly and time-consuming. With a hosted PBX phone service, you can add more numbers to your business phone system with little hassle and without added expense. This makes it easy for businesses to scale their communications up or down.
• Connect to remote workers. Cloud PBX systems use VoIP to make communications possible across a business, even if it operates from different locations. This means remote workers can connect with colleagues, clients, or customers via a mobile app or software on their laptop. Phone calls can be forwarded to their cell phone or laptop and they will retain their professional company number rather than switching to a personal phone number.
• Increased flexibility. With a hosted PBX service, your business can adjust and update its communications settings easily and cost-effectively. Employees can log in to their VoIP phone or app and configure their settings, update their call forwarding, routing, and voicemail options, and access other features such as business call conferencing and SMS.

Now that you understand how hosted PBX works, the platforms it uses, and its benefits, let’s discuss when hosted PBX is the most useful for businesses.

While many businesses can benefit from a hosted PBX solution, there are four use case examples that are especially relevant.

1. Startups. Hosted PBX is popular with startups, since the up-front costs are low and the business phone system can be rapidly and inexpensively scaled as needed. Adding and removing lines is fast and cost-effective, and your business can easily change locations without affecting access to its hosted PBX system.
2. Call centers. A hosted PBX system can be set up quickly and cheaply for a small call center. Your call center can benefit from all of the extra capabilities that hosted PBX phone systems have, such as IVR, direct routing, and auto attendant features. That being said, if you want your business to have a more substantial contact center, you may want to consider upgrading to a cloud contact center solution that can be connected to the company's PBX.*
3. Remote employees. A cloud PBX system makes call forwarding easier and more professional for remote workers. For example, if someone calls your office to speak to a salesperson who's out doing fieldwork, you can forward the call directly to their mobile with a cloud PBX system.
4. Multiple offices. If your business has multiple offices, especially if they’re in different countries, you could save a lot of money with a hosted PBX system. Cloud PBX systems allow for cost-efficient long-distance calls and will make it easier and more convenient for you to unify your business communications.

* _{Note: if you want a unified employee and customer communications platform, check out 8x8's XCaaS.}

Switching from a traditional PBX system or opting for a hosted PBX setup from the very beginning means you’ll need to choose a hosted PBX provider.

There are plenty of service providers out there that offer a range of features and are cheaper than traditional PBX solutions, so here is what you should look out for:

• Initial and recurring costs. Setup costs for hosted PBX are often low, though you will need VoIP phones and/or software to get started. Check that your phones and devices are compatible with your chosen hosted PBX provider so that you don’t run across unexpected costs when setting up. After that, check their recurring costs and pricing, such as their monthly fee and rates.
• Additional cloud phone system features. Hosted PBX systems can be feature-rich, but not all hosted PBX and VoIP service providers offer the same features and benefits. Consider what features you need, such as call forwarding or an auto attendant, and find out if your potential provider offers it.
• Quality of support. Handing over maintenance and upkeep to your hosted PBX provider is great, but you’ll want to be certain that you’ll get the support you need. Customer reviews are a great place to find out what level of support you can expect from a hosted PBX provider.
• Security measures. Your hosted PBX provider will control the security of your telecommunications, so it’s vital that they have strong security measures and practices. Check to see if your potential provider has security certificates like PCI, FISMA, and HIPAA.
• Ease of use. Cloud PBX providers offer a range of applications and software for managing your business communications. If you’re transitioning from traditional PBX to hosted PBX and cloud communications, you want to be certain that you and your employees will be able to use the new system without difficulty.

The 8x8 cloud PBX business phone system has a wide range of features and functionalities, including:

• Unlimited calling
• SMS messaging
• Fax in 47 countries
• The use of local and toll-free calls in over 120 countries.
• And many, many more.

With our multi-level auto attendant you can also quickly connect to employees and give customers a self-service option to get the information they need when they contact you.

With 8x8 cloud PBX, you can unify your workforce, stay connected, and access all the features that suit your business needs. Chat with sales to find out how you can upgrade your business communications today.