What Is a PBX? The Definitive Guide to Private Branch Exchange Systems

March 12, 2024 10 min read

Alex Doan

Alex Doan

What is PBX

As your company expands from a startup to a thriving business, you’ll want to provide phone connectivity to your staff. You’ll likely find yourself researching Private Branch Exchange (PBX) systems to do this.

This guide breaks down all the essentials you need to know about modern PBX solutions. Even if you’ve never managed a PBX before, you can jump around to the parts that matter to you.

What Is a PBX?

A PBX is short for Private Branch Exchange, an internal telephone network allowing users to talk to each other. It’s responsible for phone features like inbound and outbound calls, call forwarding, voicemail, and more.

PBXs consist of various hardware components to provide voice connectivity to the public telephone network. They operate a company’s private telephone network and relay calls to the outside world, including routing and advanced calling features for inbound and outbound calls.

Setting up a PBX is no small task. A company enlists the help of one or more systems administrators with decades of telecom experience. You’d also need the physical space to place the PBX system in the office, like a closet or server room.

To better appreciate the features and benefits of a commercial-grade PBX, we must first talk about the phone system.

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Setting Up Your Telephone Network With a PBX

Plain Old Telephone System - Diagram

The traditional telephone system is known as the Plain Old Telephone Service or POTS for short. It’s based on the twisted pair of wires from the local phone company to the building. POTS is basic, reliable, and hasn’t changed much in 140 years.

Telephone service providers connect calls with others using the Publicly Switched Telephone Network (PTSN) on the Integrated Services Digital Network (ISDN) protocol. The PSTN makes it possible for a Verizon customer to call an AT&T customer as well as patch calls over locally.

Providing a business with phone service can be expensive. A typical traditional business phone bill can easily be in the thousands every month just for a hundred lines.

There has to be a better way.

PBXs allow a business to run an internal phone system and use fewer phone lines from the phone company.

Top PBX systems can manage voicemail, auto attendants, and recorded messages. This also includes phone extensions for everyone in the company.

PBX analogy: computer networks

You might have heard long ago that the internet was running out of IP addresses. To solve this predicament, someone would use a router within an office to assign internal addresses to each device.

All those devices would then share the same IP address when interacting with the outside world. Home and business routers have effectively eliminated the concern of running out of IPs and added more security.

The same approach applies to a Private Branch Exchange. It’s a phone network that serves employees but shares the same outbound channel when they dial out. Internally, employees can use any phone extension, but they share a finite set of business phone numbers externally.

A modern alternative

Cloud-based PBX has redesigned how businesses handle phone calls, offering a significant upgrade to past limitations. Before, PBXs were proprietary and very difficult to maintain.

Today, PBX systems have evolved quite a bit.

No longer beholden to the local telephone company, calls are made using Voice over Internet Protocol (VoIP) technology. Instead of analog lines, SIP trunking can establish connectivity for a fraction of the cost.

The purpose of a PBX

The primary purpose of a PBX is to serve as a business phone system.

It allows for the internal management of phone calls within a smaller area, such as an office or business. A PBX can handle features like voicemail, auto attendants, and recorded messages, providing a comprehensive phone system for the organization.

In contrast, the PSTN is a public phone network that connects calls between different providers and handles the routing of calls on a larger scale. It’s not specifically designed for internal business phone systems like a PBX.

PBX systems empower IT leaders to maintain their existing devices with an all-digital backbone by assigning different business phone numbers to different extensions. Alternatively, a cloud PBX blends the best of both worlds with a fully managed phone system deployment.

Now that we know the purpose of a Private Branch Exchange, let’s learn about the benefits of a modern PBX for business communications.

Related: Cold Transfer vs. Warm Transfer: 3 Key Differences and When to Use Each

PBX System Benefits for Businesses

It’s not every day that businesses specifically want to set up their phone system. There has to be something in it for them to move their phone service to the cloud.

Companies large and small enjoy the impressive capabilities of a PBX. Here are the top reasons why businesses use a PBX:

Today, companies aim to configure their PBX as a cloud phone system with managed PBX features across many locations and users. This approach allows for the most flexibility at an affordable price.

Related: 4 Better (and Easier) FreePBX Alternatives

Types of PBX Phone Systems

Network Diagrams: Hosted PBX SIP Trunking

PBX phone systems exist in a few varieties to fit just about any business need thrown at it. As business applications have migrated to the cloud, so have PBXs.

Here’s a comparison table of hosted PBX vs. on-premise PBX systems:

FeatureHosted PBXOn-Premise PBX
Upfront costsLow, pay-as-you-go modelHigh, large capital investment
Ongoing costsPredictable monthly feeUnpredictable maintenance/upgrade costs
ScalabilityEasily add lines & featuresRequires more PBX equipment/wiring
MobilitySupports remote workLimited or no mobile functionality
IntegrationsIntegrate with CRM, appsLimited integration options
TechnologyModern VoIP/cloud-basedAging digital/analog
IT support24/7 vendor handlesIn-house IT team
Disaster recoveryBuilt-in failover & redundancyRequires manual backup/restoration
SecurityVendor adheres to strict standardsRisk of unsecured physical access
Future-proofingAutomatic updates & new featuresThe vendor adheres to strict standards

Comparing on-premises and hosted PBX systems can help you make the right choice for your business. Whether you’re researching PBX systems for yourself or a client, you can recognize the benefits at a glance.

For startups, small businesses, and enterprises in 2024 and beyond, a hosted PBX is the preferred way to set up phone service for your company. You’ll save yourself a ton of stress and budget.

There are a few options to consider for your PBX: hosted, on-premises, and hybrid.

1. Hosted PBX

A hosted PBX, also called a cloud PBX, virtual PBX, or IP PBX, is often included as part of a unified communications platform that lets you connect and route internal and outside lines in a single system.

With a hosted PBX system, you can manage your employee’s phones from your web browser.

Because it’s hosted in the cloud instead of on a physical server, almost any device anywhere in the world with an internet connection can use the system, including computers, cell phones, and IP phones.

Most modern IP PBX systems offer additional features you won’t find with landline systems. You can adjust PBX features like call transfer, call recording, voicemail transcription, call routing, auto attendants, interactive voice response (IVR), hold music, call forwarding, and more from an online portal.

For example, a VoIP PBX can connect to your business’s CRM software, route incoming calls to cell phones, handle large conference calls, and integrate with other communication channels like SMS or video conferencing.

Even better, a cloud-based PBX is more cost-effective than an on-premise system. Its features are updated regularly, and you won’t need to spend time setting up and maintaining the network infrastructure.

Hosted PBX providers typically charge a monthly per-user fee that includes minutes, features, and support. Some also offer metered plans that charge based on usage. Either way, costs are more predictable than with a traditional PBX.

2. On-premises PBX systems

An on-premises PBX is an in-house communication system for handling incoming and outgoing calls. It’s the traditional method that’s been used for generations and is essentially an automatic version of the manual switchboard.

On-premise PBX systems require an on-site server and manual wiring to each business phone. This results in a relatively high upfront cost of around $1,000 per line, plus ongoing occasional maintenance (consulting) fees. Costs can quickly add up, especially for larger companies.

On-premise PBX systems were once the only option, but today they’re limited and cost-prohibitive for most businesses.

The underlying technology PBX systems were built on—landlines—is becoming less relevant each year. A traditional PBX system lacks many of the advanced features you’ll have with a modern business telephone system.

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They’re also more vulnerable to security threats.

According to the FCC, some phone scams target innocent staff using legacy PBX systems to relay expensive international calls. On-prem systems are only as secure as the physical location they reside in.

As a business owner, you want to ask yourself, “Does our PBX yield the most value every year? Are we spending too much managing it?” Regarding depreciating assets, on-prem PBX systems are costly to maintain, scale, and configure.

3. Hybrid PBX

A hybrid PBX adapts an on-premise PBX system for use with Voice over IP telephony.

It uses SIP trunking technology to provide voice service for your company’s PBX system. This multi-channel voice service is available without changing other PBX features.

As your company grows, you add more channels without needing to install the wiring an on-premise system requires.

Setting up a hybrid PBX with a top-rated SIP trunk provider is a worthy option for companies that can’t afford a complete overhaul. It provides your PBX with new scalability and lower communication costs with the same hardware.

Despite these benefits, however, hybrid systems are still limited by the requirements of an on-premise PBX.

They require upfront setup, server space, and ongoing IT maintenance costs. While it’s a good option for transitioning a legacy system to VoIP technology, few businesses would benefit from installing a new hybrid system.

Choosing the Right PBX System for Your Business

When choosing a PBX system, consider the following factors:

For most modern businesses, especially those with remote or hybrid workforces, a hosted PBX system will provide the greatest flexibility, cost savings, and ease of use.

However, companies with specific security requirements or existing infrastructure may still opt for an on-site or hybrid setup.

Adapt a PBX to Your Company — Not the Other Way Around

No matter what PBX you choose, you should strive to make sure it meets your company’s needs. The way we work has changed so much in two decades. Shouldn’t your PBX keep up with you?

One of the fundamental takeaways here is that you can’t only decide based on the sticker price of a business phone system. Ensure you consider the uses, limits, and flexibility in overall communication features.

Assess your company’s growth trajectory and range of internal and external communications. No one knows your business better than you do.

PBX Phone System FAQs

Here are some more things to know about PBX.

What is the difference between PBX and VoIP?

PBX refers to the private telephone network within a company. VoIP (Voice over Internet Protocol) is the technology that allows voice communications over the internet. A PBX system can use either traditional phone lines or VoIP to connect calls.

How much does a PBX phone system cost?

Costs vary depending on the type of system and number of users. Generally, you can expect to pay $500-$1000 per user for an on-premise PBX system, plus ongoing maintenance costs. Hosted PBX systems are typically charged a monthly per-user fee, ranging from $20-$50 per month.

The call plan pricing may vary depending on the provider.

PBX phone systems are a good fit for small businesses that handle many calls and require only a few calling features to work reliably. According to a survey by Software Advice, companies that use a cloud PBX report increased efficiency and better call management.

How many phones can a PBX support?

The capacity of a PBX system depends on the specific model and configuration. Most modern systems can support hundreds or even thousands of phone lines. Cloud-based phone systems are especially scalable as they are not limited by physical hardware.

Can I use my existing phones with a PBX system?

It depends on the type of phone and the PBX system. Many VoIP-based PBX systems allow you to use existing IP phones or softphones. However, analog phones may require an adapter or need to be replaced entirely.

How secure is a hosted PBX system?

Reputable hosted PBX providers like Nextiva adhere to strict security standards to protect your data and calls. Look for features like encryption, secure data centers, and compliance certifications. In many cases, a hosted system may be more secure than an on-premise setup.

How does the cost of a PBX system compare to UCaaS?

When comparing PBX and UCaaS costs, consider:

A classic PBX requires costly hardware and ongoing maintenance that adds up over time. Additional unexpected costs and outages may occur.
UCaaS is software-based, eliminating costly hardware. Start with a basic package for a monthly fee and easily upgrade as needs grow.
UCaaS is best for hybrid and remote work, making it essential for distributed workforces.
UCaaS offers numerous app integrations to fit your specific business needs and workflows.

UCaaS platforms like Nextiva provide easy access to comprehensive, real-time analytics – a key advantage over PBX systems. Users can conveniently log into a secure dashboard to access valuable data instantly. This empowers them to easily monitor call center metrics, gain insights, and make informed business decisions.

Alex Doan


Alex Doan

Alex Doan is an experienced senior marketing professional specializing in propelling growth for both B2B and B2C companies. Proficient in streamlining marketing operations for seamless sales transitions, utilizing analytics and consumer insights to achieve measurable outcomes. Committed to enhancing lead and customer experiences through effective journey mapping.

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