What Is Hosted PBX (Private Branch Exchange)?

February 29, 2024 8 min read

Julie Bai

Julie Bai

What is a Hosted PBX?

What Is Hosted PBX?

Hosted PBX is a cloud-based telephone system hosted on your trusted VoIP service provider’s servers, rather than on-premise hardware.

Unlike an on-premise PBX system that requires your company to purchase and maintain your own hardware and bear all maintenance and upkeep costs, a hosted PBX system is maintained by your provider.

Since a hosted PBX operates on the cloud, it’s also referred to as a cloud PBX. All of the phone lines, call routing, voicemail, and other functionality happen over the internet rather than a local area network. This cuts down on hardware expenses and IT labor costs for your business.

A cloud PBX also allows employees to work remotely while still using their business phone system and number since it’s not tied to a physical location.

With a cloud PBX, you get access to enterprise-grade phone system features without the high costs of an on-premise system.

Setup can be quick and getting started is easy since there is no need to install hardware or manage updates. The provider handles all of that for you.

Legacy PBX systems are much more difficult to work with because documentation is sparse, and their functionality is rather limited.

Cloud PBX systems also have intuitive web and mobile interfaces for call control, voicemail access, auto attendants, call routing rules, and other features. This makes them user-friendly for employees to manage calls while working anywhere.

Hosted PBX vs. On-premise PBX

A hosted PBX system is cloud-based, meaning the PBX software and hardware are located off-site at a data center.

An on-premise PBX is located on a company’s physical premises and maintained on-site.

On-Premises PBXHosted PBX
Higher upfront costs for hardware purchaseNo major upfront costs
Ongoing maintenance and management costsProvider manages infrastructure
Limited built-in featuresAdvanced features included
Harder to scaleEasy to scale
Enables some remote workEnables remote teams/mobility
You manage the infrastructureTraining and support included

It’s important to dig deeper into the specific capabilities to understand the difference between hosted vs on-premise phone systems. While basic features like call transfer and conferencing are standard, you should validate more advanced business needs.

Typically, hosted PBX offers multiple benefits over traditional PBX systems.

If you run a lean startup, you can use your computer or mobile phone to connect as clients into your PBX by downloading a VoIP softphone app.

For example, The Nextiva App is available for iOS, Android, macOS, and Windows. It allows you to make and receive phone calls as you usually would.

How Does a Hosted PBX Work?

A hosted PBX shifts your phone and business communications infrastructure over to a trusted VoIP provider. Instead of individual phone extensions, each phone is replaced with a VoIP desk phone.

The diagram below illustrates how a hosted PBX system works:

Hosted PBX - Network Topology Illustration

With the implementation of the hosted PBX, your voice communications use the existing data network. Business broadband can easily support the unified communications needs of the entire office. All the top PBX features, like call routing, call recording, and conferencing, are provided by the VoIP service.

Instead of using a proprietary phone with your PBX, hosted platforms let you use any SIP phone for the greatest compatibility. Calls are established securely over the same network your computers use.

The information travels over IP networks to the cloud PBX, which reaches scalable data centers. Those servers route calls to other VoIP providers, including the publicly switched telephone known as a PSTN.

To manage how your calls are handled, including advanced call features, you just need to access an online voice portal in your browser to adjust your settings. Once you click save, the changes are applied in an instant.

This process works the same for small businesses as it does for larger offices — just plug your phones in and get back to work.

There are two types of hosted PBX phone systems. Let’s compare them to see how they benefit companies like yours.

Benefits of Hosted PBX

There are many reasons why businesses switch from an on-premises PBX to host their business phone system in the cloud.

When comparing the two, you’ll notice that hosted PBX offers a wealth of features — that’s because there are dozens of VoIP features to implement.

1. Flexibility & remote workers

One of the top reasons to switch to hosted PBX is the flexibility it provides for remote employees.

Voice over Internet Protocol lets staff use an app and immediately have calls forwarded to any number or device, anywhere in the world. All that’s needed is a hosted PBX provider and reliable internet. This accomplishes what an on-premises PBX typically can’t.

2. Easy setup & maintenance

Another big plus is the fast setup with minimal maintenance. Hosted PBXs can deploy in days without on-site infrastructure. You don’t need to hire dedicated staff to manage changes or troubleshoot issues.

The cloud-based nature makes the whole system simpler to implement & maintain.

3. Better customization & control

With a hosted PBX, call settings and routing can be adjusted instantly. Features like call forwarding, conference lines, caller ID, and voicemail to SMS are easily toggled on/off. The days of calling the phone company for changes are over — cloud platforms put businesses in charge.

4. Enhanced reliability & redundancy

Arguably the most crucial benefit is reliability.

Since hosted PBX isn’t tied to physical wiring or an on-site box, many infrastructure failure points are avoided. With built-in failover and interconnected data centers, cloud phone systems offer redundancy that keeps companies running smoothly.

For businesses, increased reliability is arguably the most crucial benefit.

Even in the event of inclement weather that requires evacuation, you can configure your VoIP phone system for remote employees to alert customers with timely messaging, forward calls to voicemail, or even route them to cell phones.

5. Call security and encryption

Hosted VoIP calls transmit call data packets between the cloud PBX and IP phones/computers.

Leading business VoIP providers encrypt these voice packets using Secure Real-time Transport Protocol (SRTP) and Transport Layer Security (TLS), making it nearly impossible for data to be intercepted. Encryption secures all call data without impacting voice quality.

Should You Switch To a Hosted PBX Phone System?

Let’s say you’re adding more employees or workplaces. An in-house PBX could bottleneck, slowing the setup of new phones and extensions.

With hosted PBX, new numbers and lines happen nearly instantly, keeping you agile.

Maintaining an on-site system is no small task. You’d need someone owning it as their job. We’re talking an $80k+ telecom manager salary. Then, pile on equipment costs, maintenance, repairs, etc.

Telecom Manager with PBX skills - Salary Range
Via PayScale

With hosted, day-to-day falls to your provider, not pricey internal staff. What about controlling everything on-site? That control comes at a cost. As you expand to new sites, you don’t want your folks scrambling cross-country to set up servers.

Hosted PBX bases in secure data centers, so reliability and compliance are covered. No server rooms to manage. Just log in anywhere with the right credentials and you’re live.

Bottom line — if growth and distributed teams are priorities, strongly consider hosted. Scales cost-effectively, staff can self-manage anywhere, and you transfer technical ownership offshore.

The flexibility and access speed are big advantages over dated on-site systems.

Here’s a quick video that explains step-by-step how to replace your PBX.

How To Choose the Right Hosted PBX Provider

Not all cloud PBX providers are the same. Selecting the service provider makes a massive difference in achieving your business goals.

Before implementing a hosted PBX solution, we recommend deciding on the number of users and features needed, budget, reputation and customer support, security, and data privacy.

Cloud system buyers should establish their business requirements, compare VoIP features, research security protocols, and examine service and support offerings.

Essentially, choose a hosted PBX provider that covers the following factors:

When you score your hosted PBX service, you will see that Nextiva consistently ranks as the best business phone service in the industry. Why? Nextiva is easy to use, offers unrivaled reliability, and the support team is legendary.

The Future of Hosted PBX

The workplace has changed a lot in 20 years, let alone the last five.

The pandemic forced us to work exclusively from home, and many businesses moved to hosted PBX solutions so their employees could continue to receive calls and work remotely.

Those still on a PBX (like hotels that have a phone in each room) are usually doing so because they paid a ton upfront for the equipment and software licenses and may still be paying off the loan.

It’s a fact that work has fundamentally shifted from structured offices to ones that embrace more flexibility. It’s time for your business phone system to keep up with the change. 

Business owners and IT administrators share universal respect for products and services that just work.

Gone are the days of tinkering with an old Windows server with outdated PBX software to save a few dollars. This is a classic case of tripping over dollars to pick up pennies.

The move to the cloud is here. 

The modern office will continue to shift towards using less hardware.

Softphones will replace desk phones as the new standard. Call centers will continue to upgrade their aging PBXs with a modern hosted PBX that connects their agents around the world using nothing more than an internet connection.

With the rise of work-from-home employment, will your PBX keep up?

Upgrade to Hosted PBX

Ready to try these modern hosted PBX features in your business phone system?

Learn More About Hosted PBX (FAQs)

How much does a cloud PBX cost?

The cost of a cloud PBX phone system varies depending on the features, number of users, and overall capabilities. However, cloud PBX costs much less than traditional on-premises PBX systems.

Expect to pay between $15-$50 per user per month for a basic cloud PBX system, with prices going up for advanced features and integrations. There are also usually minimal upfront costs compared to on-premises systems.

Is PBX the same as VoIP?

A PBX (private branch exchange) is a private telephone network businesses use. VoIP (voice over internet protocol) refers to making phone calls over the internet rather than traditional phone lines.

Many modern PBX systems use VoIP to route calls over the internet, so the two technologies are complementary. However, you can have a VoIP system without a PBX, or a legacy PBX system without using VoIP.

What is virtual PBX?

A virtual PBX system provides PBX capabilities but is delivered as a hosted service over the internet rather than as on-premises hardware. It’s another name for hosted PBX. This allows businesses to handle their own telephony and call routing through a web-based dashboard. Virtual PBX systems provide the same call routing, IVR menus, extensions, auto attendants, etc, as a legacy PBX without requiring costly hardware.

How do I get a virtual PBX system?

Getting a virtual PBX simply involves subscribing to a hosted PBX provider, rather than installing a PBX on-site. Leading providers like Nextiva allow you to set up extensions, phone numbers, call flows, and more via web/mobile dashboards.

Virtual PBX can integrate with existing phones or provide new VoIP desk phones.

Julie Bai


Julie Bai

Julie Bai was a product manager at Nextiva, UCaaS evangelist, no-bull communicator, and translator for people, dog lover, and mother to an adorably active boy.

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