On-Premise PBX Versus Hosted PBX

I, Adamantios, CC BY-SA 3.0 , via Wikimedia Commons

On-premise PBX and hosted PBX both have advantages and disadvantages. Choosing between them is all about understanding the fundamental differences but making the switch to the IP-PBX phone system is always beneficial regardless of the chosen system. Even so, the differences help you to choose the best VoIP phone system. At the end of the day, the goal is for your business to offer high satisfaction levels for employees, callers, and the entire company.

Understanding Hosted PBX

Hosted PBX (also known as hosted VoIP or simply Internet phone system) puts the provider in charge of housing IP-PBX and the technology needed to offer services to phone systems. Desk sets are plugged into routers and there is an IP-PBX server that handles features, signaling, and calls. This server is physically present at a location owned and operated by the VoIP service provider.

A monthly fee is charged by the provider. This usually includes a number of minutes and some features. It is also possible to opt for per-minute calling charges. Based on rates, both options can be affordable for the business using hosted PBX.

Understanding On-Premise PBX

On-Premise PBX is very similar to traditional PBX systems residing at the user location, like inside a phone closet or in the computer equipment room. The big difference is that the IP routing uses more current technology. An IP phone is used for signaling to an IP-PBX server with the use of LAN.

Phone calls are capable of going through a VoIP or a traditional phone system. For connecting to traditional phones a gateway card is used.

The most affordable on-premise PBX option is the Asterisk-based system. This is because open-source software is used for extra flexibility.

On-Premise IP-PBX Versus Hosted IP-PBX

Choosing between the two, as already mentioned, is all about the differences. There are limitations and benefits business owners need to determine when figuring out the very best option. As a result, the main factors to be considered are costs and expansion.


When you use on-premise IP-PBX, you need to buy hardware. This includes the server and as many interface cards as needed. With hosted IP-PBX, you only need to buy IP phones, a router, and maybe a network switch.

With Hosted PBX:

  • Set-up and equipment costs are lower (they are also very fast).
  • The customer handles IP-PBX feature programming and network qualification.
  • Zero maintenance costs.
  • The customer handles staff training.
  • Very easy to add an extra line.
  • Very low service costs.
  • New features and upgrades included.
  • Additional costs appear when extended features are needed, like setting up the system for conferencing.

With On-Premise PBX:

  • Higher initial costs (needed for hardware, software, and set-up).
  • Higher maintenance costs.
  • After all expenses are covered, monthly costs become lower.
  • Can get lower-cost calls with SIP trunk ability.
  • The provider programs and installs IP-PBX
  • The provider trains the staff for best practices and feature use.

The IP phones you use do not matter as they can be used for both hosted IP-PBX and on-premise IP-PBX. With the other equipment, like software, switches, battery backup, routers, and servers, costs can be considerable. The typical cost for a server with the needed cards and software is around $4,500.


If you believe you will need to expand in the future, associated costs need to be taken into account. It is easy to add an extra phone to the on-premise PBX since you just have to buy the unit. When you use hosted PBX, extra programming is needed. This would add to monthly costs, based on the contracted plan. Simply put, with the hosted option, costs increase when you add an extra phone. With on-premise systems, you just buy the phone and you do not need to pay extra every month.


When you choose out of these two systems, the main thing to take into account is what you actually need. While service providers will mainly focus on positives, there are clear negatives for both options. For instance, with hosted PBX:

  • The Internet connection dictates voice and connection quality.
  • System flexibility is limited. The business relies on the features available from the provider.
  • Internet loss leads to no access to the phone service (unless there is also a traditional phone system available).
  • Fees can change.
  • Cancellation fees might exist.
  • Provider stability can vary.

With on-premise IP-PBX:

  • Expansions can lead to complicated projects.
  • For proper management, a provider is needed.
  • The manufacturer might go out of business. This can lead to maintenance problems.
  • Technicians are needed for software patches and technical upgrades.
  • Without a SIP provider, business operations stop when power is lost or PBX fails.

Always compare both negatives and positives for on-premise IP-PBX and hosted PBX. The solution that is the best for one company is not necessarily the best for another. Comparisons help you to choose what is highly beneficial for your business.

Featured Image: I, Adamantios, CC BY-SA 3.0 http://creativecommons.org/licenses/by-sa/3.0/, via Wikimedia Commons

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