What Is Hosted VoIP? A Complete Guide for Your Business

May 28, 2024 8 min read

Julie Bai

Julie Bai

Finding the Right Unified Communications Provider

Stuck with an outdated phone system and eye-watering phone bills? Hosted VoIP can be your solution. It’s a modern VoIP calling system that’s feature-rich, cost-effective, and scales with your business size.

Here’s the deal: You ditch the bulky hardware and expensive phone lines. Hosted VoIP uses your existing internet connection for crystal-clear calls, seamless collaboration, and a professional business phone number — all at a fraction of the cost.

This article will explain everything about hosted telephony, how hosted VoIP phone systems work, and how to use them to efficiently connect with your clients, partners, and team. Let’s start with some basics first.

What Is a VoIP Phone System?

A Voice over Internet Protocol (VoIP) phone system is a telephony technology that enables businesses to communicate over a broadband internet connection instead of traditional phone lines.

It works by converting voice into digital data packets and sending them over the internet. VoIP telephony eliminates the need for physical phone lines and offers a more flexible and cost-effective way to make calls.

How VoIP works

What Is Hosted VoIP?

Hosted VoIP is a cloud-based telephony solution that uses the internet to facilitate voice, video, and data communications, rather than relying on traditional phone networks. The service provider hosts the necessary VoIP infrastructure and equipment offsite in their data centers, eliminating the need for businesses to invest in and maintain costly on-premises hardware.

Users access communication features through the provider’s hosted platform, bypassing the complexity of managing in-house telephony systems. Hosted VoIP solutions typically include a suite of advanced features, such as call forwarding, voicemail transcription, virtual receptionist services, and video conferencing capabilities.

Hosted VoIP systems offer significant advantages in mobility and remote access. By leveraging the internet, users can make and receive calls from virtually anywhere using various devices like desktop phones, softphones (software-based phones), and mobile applications.

This flexibility empowers remote teams, traveling employees, and geographically dispersed businesses to maintain seamless communication and collaboration.

Hosted VoIP phone service offers a cost-effective, scalable, and feature-rich communication solution. Businesses benefit from transferring infrastructure and maintenance responsibilities to the service provider, so they can focus on core operations while enjoying advanced telephony functionalities.

How Does Hosted VoIP Work?

Traditional phone systems rely on a network of physical wires called the Public Switched Telephone Network (PSTN). When you make a call using an analog phone, your voice travels as electrical signals through these wires to the recipient’s phone.

Hosted VoIP, on the other hand, takes a modern approach. Voice over IP converts your voice into digital data packets, similar to tiny pieces of information. These packets travel over your internet connection instead of phone lines.

Here’s how a hosted VoIP call works:

How a Hosted VoIP Phone System Works (Diagram)

Even if you already have a phone system, you can still use VoIP features. Session Initiation Protocol (SIP) Trunking connects your existing phone system to a VoIP provider, enabling you to enjoy some of the benefits of VoIP without replacing your entire setup.

Advantages of Hosted VoIP

Hosted VoIP solutions offer a cost-effective, scalable, and feature-rich solution for businesses looking to improve communication and collaboration. With its ease of use, advanced features, and mobility benefits, hosted VoIP better enhances your business operations.

What Is the Difference Between Hosted and Cloud VoIP?

The terms “Hosted VoIP” and “Cloud VoIP” are often used interchangeably. There’s a very subtle difference.

Hosted VoIP specifically refers to the service model where the provider manages the hardware and software for your phone system in the cloud.

Cloud VoIP is a broader term encompassing any voice service delivered over the internet, which could include features beyond traditional phone calls. Hosted VoIP is a type of cloud VoIP, but not all cloud VoIP solutions are hosted.

Hosted VoIP vs. Hosted PBX

A PBX, or Private Branch Exchange, is a traditional business phone system that offers features like call queuing, extension dialing, and voicemail. However, these features rely on complex hardware housed on-site, requiring IT expertise for management and maintenance.


Hosted PBX is an improvement over traditional PBX. It’s a type of hosted VoIP service specifically designed to replicate the functionality of a traditional PBX system in a cloud environment. You can still use your IP phones or desk phones with VoIP functionality, no on-premises environment needed.

Hosted PBX provides all the functionality of a traditional PBX without the hassle. A cloud PBX service, like Hosted VoIP, uses the internet to deliver these features.

The VoIP provider manages the hardware in the cloud, eliminating the need for on-site equipment and IT expertise. Your phones connect directly to the provider’s servers, offering features like call routing between offices and smooth integration with other cloud-based applications.

If your business relies on features like call extensions and voicemail, a Hosted PBX might be the ideal solution.

However, if you prioritize cost-effectiveness, scalability, and mobility, Hosted VoIP offers a more flexible option.

Key Hosted VoIP Features

Hosted VoIP goes beyond simple phone calls, transforming your communication into a feature-rich hub. Here’s a glimpse of the powerful tools you get with a hosted VoIP service:

This is just a starting point. Hosted VoIP providers offer a vast array of features to cater to your specific requirements.

VoIP features

Beyond Hosted VoIP: UCaaS for Unified Communication

If you want a truly unified communication experience, consider UCaaS (Unified Communications as a Service). UCaaS builds upon the foundation of Hosted VoIP, seamlessly integrating features like:

UCaaS offers a comprehensive communication suite that empowers businesses to connect, collaborate, and achieve success in today’s dynamic world.

Is Hosted VoIP Right for You?

Hosted VoIP can be an excellent choice for small businesses and startups thanks to its cost savings, scalability, mobility features, and robust calling capabilities included at no extra cost.

Not having to purchase and maintain on-premises hardware provides major financial benefits. The ability to easily add or remove users as needed supports business growth. And features like auto-attendants, video conferencing, and find-me/follow-me calling help projects a polished, professional image.

However, hosted VoIP relies heavily on stable, high-speed internet connection and bandwidth, which could be problematic in certain areas with poor connectivity. Businesses dealing with sensitive data or stringent compliance requirements will also need to thoroughly vet providers’ security practices and regulatory adherence.

Partnering with an enterprise-grade hosted VoIP provider helps mitigate these issues.

Reputable hosted VoIP providers take care of all security measures and comply with key regulations like HIPAA, PCI-DSS, and GDPR to provide a safe and secure communications infrastructure. They also offer robust service level agreements (SLAs) to ensure high uptime and quality of service.

Assess your hosted VoIP service, security needs, and calling requirements to determine if the benefits outweigh the potential drawbacks for their specific situation.

Choosing the Right Hosted VoIP Provider

With numerous providers offering hosted VoIP services, choosing the right one is crucial. Where do you begin?

There’s no one best VoIP provider; although many competitive options like Nextiva do fulfill the requirements of an ideal VoIP provider.

VoIP service providers
A look into the top providers and their U.S. News Rating

Migrating To Hosted VoIP? Why Choose Nextiva

Need a new VoIP phone system or want to integrate your existing PBX with VoIP? Nextiva has you covered.

We offer a seamless migration process, exceptional customer support recognized by Gartner and GetVoIP reviews, and a reliable, secure network built for business continuity.

A 99.999% uptime is enterprise-level system availability. Nextiva also offers HIPAA-compliant hosted VoIP solutions for enhanced security.

Nextiva conducts regular security testing to scale its network. We pair that with award-winning customer service so businesses can focus on what matters: customers.

Whether setting up the new VoIP system, transferring existing data, or training your team, Nextiva offers a smooth transition to hosted VoIP so you can use it without interruptions.

Cloud VoIP service done right.

Integrate secure phone service, SMS, video, and team chat in VoIP platform.

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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