POTS vs. VoIP vs. PSTN – Which Is Right For Your Business?

April 4, 2018 12 min read

Cameron Johnson

Cameron Johnson


There was a time when telephony was just telephones and telephone numbers and no one used acronyms. Those times have changed. Now the industry is abuzz with terms like VoIP, SIP, POTS, and PSTN. What do they all mean and why should you care?
These acronyms refer to telephony systems that cannot only help make your business more effective with your customers but also more secure. To make an informed choice on which services are right for your business, it is important to understand the pros and cons of each system.
In this article, we will explore the underlying technologies and benefits to help you decide which one is best for your business.
But first, let’s tackle the acronyms.


PSTN stands for Public Switched Telephone Network and is just a fancy name for the traditional telephony we are all familiar with – where telephones are connected to dedicated networks. As long as you  know the correct telephone number, these networks allow you to call another person anywhere on the network.
If you call this “Plain Old Telephone Service,” you will have accurately explained the second acronym: POTS. Funny as it sounds, it really means this! All you need to remember is that PSTN and POTS mean exactly the same thing and are used interchangeably.

2. PBX

PBX means Private Branch Exchange and is the “switch” in an organization’s premises that routes calls internally and externally to the PSTN/POTS.

3. VoIP

VoIP is the new(ish) kid on the block and stands for Voice over Internet Protocol. This means that voice communications are sent over the Internet rather than through traditional telephone networks.

4. SIP

SIP means Session Initiation Protocol. It’s usually associated with VoIP and often seen as SIP Trunking – more of this later!

Key Differences between POTS vs. VoIP

VoIP market growth projections

If you’re thinking of switching to a new commercial phone service, there are some key differences between VoIP vs. POTS that are worth investigating. Bonus: VoIP offers some additional features to business users that could just give them business a competitive edge.
Global VoIP adoption has increased exponentially over the last few years (see graph below). In some countries, VoIP is more common than the POTS. This trend is expected to continue and may mean that VoIP will soon become the default standard for telephony.

It’s worth diving into the details of both systems. First, let’s look at the different technologies.


POTS diagram
how VoIP works diagram

PTSN (or Public Switched Telephone Network) encompasses all the switched telephone networks across the planet operated by local, national or international carriers. These are the networks that provide the infrastructure and the services for public telecommunication.
Think of PSTN as analog and VoIP as it’s the digital equivalent.

When you put a phone handset to your ear and dial a number, the tones you hear are the signals being sent down the twisted copper wires connecting your phone directly to a local exchange. The local exchange is just a switch; it listens to the tones you’ve sent from your phone, interprets the telephone number (i.e. the “address”) of the destination requested and routes your call accordingly.
Depending on its final destination, a call could pass through many switches and exchanges as it is passed from circuit to circuit, across networks. This happens until it reaches the local exchange and is once again passed down the twisted copper wire to the house of the person you are calling. The exchanges achieve this through the use of circuit-switching technology using telephone numbers as unique identifiers to locate and connect to the destination telephone.
For your connection to succeed, the PSTN has to open circuits between exchanges as a call is passed through the network. More importantly, the circuits must stay open so the analog signals can be sent directly to the device at the other end.
Sometimes you can hear the delay on a long-distance call because the signal takes time to reach the other end. This is why long-distance calls are more expensive because it’s necessary to keep all the circuits open for as long as the call lasts.
If the call originates or ends in at a business, rather than an individual, your call will go through the additional step of a PBX (private branch exchange). A PBX is a switch that removes the necessity of a direct line for every phone on the premises. The PBX can route calls internally and may also offer some other limited features like voicemail.
An office phone for remote workers effectively replaces the need for a PBX and instead routes calls across the data network via a router. Instead of your calls being routed along a dedicated wire to a local exchange, VoIP makes use of the standard Internet “packet switching technology,” therefore the functions of the PBX are performed by the VoIP provider.

As you talk into your phone, your voice is being transformed into a stream of data packets that are passed across your router and out into the Internet. This happens in the same way your emails or tweets are sent around online. The packets of data contain all the information needed to route your call to the correct destination device (the IP address) as well as the data bits that will be reconstructed at the destination device to sound exactly like your voice.
Unlike POTS, VoIP calls do not need a dedicated circuit to remain open during the call (bonus fact: data packets are quite likely to take different routes to their destination).

SIP Trunking

sip trunking diagram

SIP (Session Initiation Protocol) is often used in conjunction with VoIP. Many VoIP solutions are “hosted” services, but SIP trunking delivers telephony services to customers with a SIP-enabled PBX which then provides all the call management services, voicemail, auto attendants, etc. SIP trunking allows businesses to host VoIP services rather than subscribe to an external vendor’s services.

Self service is becoming increasingly popular with larger companies that can afford to invest in SIP technology because it allows the business full control over its voice communication technology. It also allows businesses to choose VoIP technology based on specific needs. Smaller-sized business are less likely to incorporate SIP trunking in VoIP solutions due to the physical space and maintenance costs associated with an on-premise PBX.

Features of VoIP vs. PSTN

VoIP and PSTN: Why should we care about which one we chose?
The big difference between POTS (the Plain Old Telephone Service – don’t you just love that acronym?)/PSTN and VoIP is that digital service allows voice communication to be integrated with other digitized media.
For example, an incoming VoIP call from a client can be digitally bundled with the client’s account details so whoever answers the phone has immediate access to the caller’s identity and full account history.
This represents one of the main advantages of VoIP vs. POTS. Phone calls made over landlines are separated from other forms of communication like email or instant messaging; it’s not possible to achieve the same degree of integration with POTS calls because they are not technologically sharable through the same infrastructure.

VoIP doesn’t require its own infrastructure; it shares the same networks as all other internet services. With VoIP, it’s possible for phone calls to be fully integrated with business systems. This allows for easier data transfer and more efficient business processes. While these advantages may not be important for domestic users, businesses that are keen to utilize the full potential of online connectivity and cloud technology are smart to check it out.
Let’s take a look at the features offered by both systems:




  • Connects to existing data networks – no need for a dedicated infrastructure.
  • Uses same packet-switching technology as other internet services.
  • Infrastructure support does not require specialist voice technicians.
  • Uses its own dedicated voice network.
  • Uses circuit switching technology.
  • Requires specialist voice technicians for infrastructure support.
Network Capacity
  • 10 kbps required.
  • Bandwidth taken and released as needed.
  • Upgrades typically involve a software update and the allocation of additional bandwidth from the existing network capacity.
  • 64 kbps typically required.
  • Bandwidth is reserved as the call is set up and not released until the call is completed.
  • Upgrades tend to involve purchasing additional lines and more hardware. This can quickly become complex and costly.
Remote extensions
  • Remote extensions can be added easily with software functions.
  • All extensions require a physical connection. Remote extensions need their own dedicated line.
  • If there is a power outage calls can either be forwarded to a pre-designated alternate device (like a cell) or be forwarded to voicemail.
  • Except for cordless handsets the system will stay active even during a power outage.
Call management facilities
  • Call waiting, forwarding and transfer are standard features and are usually offered with no additional cost.
  • Other value-add services are available (see below).
  • Call waiting, forwarding and transfer are available but usually require additional cost.


  • Other value-add services are not commonly available.
Emergency calling
  • Calls to emergency services not traceable.
  • Emergency service calls are a standard feature and are traceable to a location.
  • Cost is not based on time or distance.
  • Companies can save up to 60% each month
  • Cost varies depending on time and distance.
  • Often local calls are nominally priced.
  • International calling can be costly.

Other value-add services available with VoIP

Most VoIP providers have additional value-add services that are not available with POTS. For example, Nextiva also offers:

  • Auto-attendant – The caller is greeted with a voice message with options (e.g., Press 1 for Sales, 2 for inquiries, etc.).
  • Call forwarding – This allows the redirection of calls to another destination depending upon “rules” set by the user (e.g., when you’re busy, it will forward calls to another number).
  • Voicemail to email – This allows users to forward voicemail messages to an email account.
  • Voicemail to text – This feature converts voicemail to text messages and sends to a mobile phone.
  • Soft phones – This software turns computers or mobile devices into virtual phone handsets.


cost savings from switching to VoIP
unified communications with VoIP saves time

Organizations that switch to a virtual phone system typically experience company-wide savings of 60% on telephone costs. VoIP harnesses the Internet to make connections between users across its cloud-based platform, so calls are not charged according to time or distance. Instead, users are charged on a subscription basis which varies according to what services are selected and how many users will be connected.
Nextiva’s pricing starts as low as $20 a month per user and goes to $30 per user if you want to take advantage of the full range of services. These prices are based on a company with 100 or more users, so if you have fewer users, the monthly price will be slightly higher. But even then the monthly user subscription is less than $50 for a fully featured service.
In contrast, it is estimated that the average POTS business line costs around $141 per month (based on figures from 2013). The figures may have changed since 2013, but the cost differential of around 60% between POTS and VoIP has remained the same.

If saving money and increasing revenue margins is important to your business, moving to VoIP will cut a significant chunk off your telephony costs. When you do the math, based on 100 users the benefits add up very quickly. Using these figures, 100 POTS lines would cost you $14,100, whereas the monthly bill for 100 VoIP subscribers would be $6,600.
That’s a savings of $7,500 a month or $90,000 a year!
Another financial benefit of moving to VoIP: the cost can be shifted from the capital expenditure budget (CAPEX) to the operating budget (OPEX). This reduces the cost and risks of capital depreciation. With VoIP, there is no need for any upfront investment to acquire the infrastructure (there is no PBX in a VoIP configuration because the switching is cloud-based and performed and managed by the service provider).
On top of this, you can make a case for productivity improvements facilitated by the additional features that VoIP offers. For example, according to some case studies, companies using unified communications (VoIP) can save 115 minutes per day, per user!
Imagine how much time you can save if you can always reach a co-worker on the first attempt? VoIP follow-me services make this possible, and studies suggest that this saves everyone at least 30 minutes a day! This can quickly add up if you add other productivity improvements like single interfaces for all email, voicemail, and messaging.

Industry trends

The case for VoIP is compelling: lower investment costs, lower monthly running costs, and the potential for greater productivity.
And the business community is catching on.
Estimates put the global value of the VoIP market at $100 billion in 2016, and expect it to rise to $200 billion by 2024. At the moment, VoIP still only accounts for 15% of business users and 25% of household users, but with growth estimated to be as much as 15% per year in the business sector, it won’t be long before the market is equally shared between POTS and VoIP.

PSTN vs. VoIP: Call Quality

As with any technological advancement, VoIP has come a long way since its inception in 1973. Even a decade ago there was a perception that VoIP call quality was inferior to POTS. This previously was the main concern of individuals or organizations thinking of transitioning from the PSTN to a VoIP solution.
Whilst it is true that VoIP jitter, variable latencies, and dropped packets can lead to low voice quality over VoIP connections, nowadays the quality is at least as good if not better than PSTN. Most VoIP providers benchmark quality using the HD Voice standard. The frequency range of VoIP is much greater than POTS (7000 Hz as opposed to 3400 Hz). This means that voice quality is far richer and more natural than ever before.
Pros and Cons
We have seen that there are some key differences between POTS and VoIP, but which is best for you or your business?
Here’s a recap with pros and cons:


Though limited in its capabilities, POTS is simple. It’s easy to use, easy to set up and easy to maintain (by dedicated voice engineers).
But on the other hand it does have some disadvantages:

  • Call charges are generally higher
  • Scalability is limited by the capacity of the dedicated infrastructure. Once you have outgrown the capacity of a PBX, you have to upgrade the hardware.
  • A dedicated line must be kept open during the entire call period.
  • The technology doesn’t allow for optimizing bandwidth (a call requires a dedicated line regardless of its data capacity).
  • Phone systems require a dedicated maintenance service in addition to monthly costs.

2. VoIP

VoIP, being the latest telephony technology, offers features that are very attractive to business users:

  • VoIP uses packet switching technology and can be integrated with all other network support activities.
  • Data, video and voice can all be transmitted together.
  • Scalability is easier with a VoIP solution. Increasing the capacity of your VoIP network doesn’t require additional hardware.
  • Bandwidth can be optimized along with other data requirements.
  • Existing internet infrastructure is utilized, so there is not too much additional hardware required.
  • Call costs are reduced, and value-add services are generally available for no additional cost.

That said, we mustn’t ignore that there are still some disadvantages, including:

  • Call quality remains a concern – even though poor quality can normally be avoided, the perception remains that quality is less consistent in a VoIP solution.
  • The VoIP market is still growing. Some disadvantages may be associated with the relative inexperience of the provider, so it’s important to select a reputable supplier like Nextiva with a proven service record.

Switching from POTS to VoIP

Lots of companies have switched to VoIP from POTS and there are some fascinating case studies to be found on the Internet. One particularly interesting example is that of APG Media of Chesapeake (see here), a community newspaper conglomerate.
With a thriving community of readers spread across the region and 200 employees in 15 different locations, communication was absolutely vital to the success of the company.

In the past, issues with existing copper wire infrastructure prevented calls from being transferred between locations. It was so bad that a call to the wrong office location had to be terminated by the caller who was then instructed to call again on another number! It’s easy to imagine how irritating this would be (and obviously there’s the additional risk of losing business along the way, too).
It was so bad that employees were giving out their personal mobile numbers to avoid missing important calls!
The company chose to switch to a VoIP service provided by Nextiva. Together, APG and Nextiva embarked on a gradual rollout, initially launching online faxing facilities and eventually the full VoIP solution.
Apart from solving the call transfer problem, now they could easily contact all their staff (including journalists) out in the field. As their regional director David Alltop explained:

“There was no longer any reason for people to give out their personal phone numbers. We now had complete control of phones, contacts, and how our staff is being reached. Our reporters only give out their main number that is in the Nextiva system so we don’t have to worry about losing touch if a staff member leaves the company or is unavailable. And for those who also have handsets, we have dual ring set up. They can answer any call from their desk or cell phone!”

This is fairly typical of the stories from companies who have made the switch to VoIP.

So which is right for your business?

If you’re looking to grow your business and provide a superior customer experience while reducing expenses, switching from PSTN to VoIP is the right choice for you. From auto-attendants to call forwarding and advanced call center analytics, VoIP empowers your business with all the communication tools it needs to succeed.

Cameron Johnson


Cameron Johnson

Cameron Johnson is a market segment leader at Nextiva. Along with his well-researched contributions to the Nextiva Blog, Cameron has written for a variety of publications including Inc. and Business.com. Cameron was recently recognized as Utah's Marketer of the Year.

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