Differences Between Traditional and Hosted Business Phone Systems

A Private Branch Exchange (PBX) is a business phone system and is made up of three components: The Exchange (the brains of the system), the Gateway (connects users to the outside world) and the end sets (the phones).

Phone systems were developed to manage a company’s phone calling and provide a lower cost option to phone company phone features.  Phone systems can be purchased, so businesses can avoid the ongoing monthly fees that phone companies charge for services like Conferencing and Voicemail.  With a phone system, employees of a business can share phone lines.  Without a phone system, phone lines need to be on a one-to-one, employee to phone line, ratio. So the use of a phone system can reduce the number of phone lines (and their expense) a company needs to conduct business. In this blog let’s go through the differences and the pros of traditional vs. hosted business phone systems.

Differences Between Traditional vs. Hosted Business Phone Systems

Traditional phone systems are typically set up where the Exchange, the Gateway and End Sets all reside at the same location (similar to a computer local area network). Some multi location businesses create private-line, voice networks and locate the Exchange at their headquarters. Branch offices are connected to the headquarters and share access to the Exchange (more like a wide area network).

Traditional phone systems provide services like Call Transfer, Voicemail, Account Codes (to keep track of long distance calling charges) and allow a business to manage calls depending on time of day and day of the week. Gradually with the new inventions, these telecom services headed for extinction.

Auto attendant is also a popular feature because it performs many of the same functions that a receptionist would perform, such as connecting a caller to an individual’s extension or a particular department.

Traditional phone systems can be expensive – $5000 for a very small system; $100,000 to $200,000 for a system that could service a large enterprise.  Typically, traditional phone systems are purchased and treated as a capital expense (for tax purposes).

Hosted phone systems differ from traditional phone systems because the Exchange is owned and maintained by the company providing the equipment.  The end-user buys or rents the phone sets and the cost to access the Exchange is blended in with the cost of their business phone and internet services.  Because a hosted system isn’t purchased, the cost of a hosted phone system is treated as an operational expense.

Hosted phone systems utilize Voice over IP technology.  Voice communication is transmitted over a data network.  Call quality can be maintained because voice traffic is given a priority over data traffic and the provider controls everything – the phone equipment, the phone service and the internet access.  Some hosting companies will allow you to use your own phone and internet services but it can be difficult for them to assure call quality and trouble shoot the system.

VoIP hosted phone systems provide all the features that traditional systems provide and more.  Hosted systems provide web portals that allow administrators to change hunting sequences, turn forwarding on and off and add new users.  Users can send voicemails to their email inboxes, can change their Follow Me (a form of call forwarding) settings and provide location and work status info.

Pros of Traditional vs. Hosted Business Phone Systems

If your business is in the market and you need a phone system, which system would you pick, a hosted phone system or a more traditional system? Read this traditional vs. hosted phone system comparison to have the right one.

Pros of a traditional phone system:

  • You buy and you own it.  Typically, a business phone system requires a 5-year lease with a one-dollar buy out.  Phone systems can last 20 years, no problem.  If you can continue to buy replacement parts, find people to service your system and it provides you with all the features you need, there’s little reason to replace it.
  • You own every part of the system.  A PBX (Private Branch Exchange) is self contained and the exchange (brains) of the system remain at your business location and can be maintained and secured accordingly.
  • Call quality.  Call quality with POTS lines (business phone lines) or PRI (voice T1) and a PBX is excellent.
  • Dependability.  A PBX combined with POTS lines or PRI is extremely dependable.
  • Hands on assistance.  If you own a phone system your phone vendor will come out and maintain and repair your system.  You won’t have to call a customer service center and work out problems over the phone.

Pros of Hosted Phone System: 

  • Cheaper upfront cost.  You rent or purchase the end-sets and pay a monthly fee for access to an exchange.  Even if you lease a traditional phone system, you’re upfront costs will be more than they would be with a hosted phone system.
  • More features.  Hosted phone systems usually include a web portal that allows an administrator to change a hunting sequence, forward phone numbers, move extensions…  Users can send voicemails to their email inbox, create call forwarding sequences, even take their phone sets home with them, plug them into an internet source and receive calls like they were at work.
  • Won’t become obsolete.  There are businesses using phone systems today that aren’t compatible with Caller ID or don’t support digital phone lines.  If your business takes off or experiences a down turn, with a hosted solution, you’re not going to be stuck with an inadequate phone system or overkill.
  • More bang for your buck.  A small company can receive all the features a expensive PBX offers without doling out thousands of dollars that could be better spent on something that could help grow the business, like marketing or advertising.
  • Less to service.  With a hosted phone system, your provider maintains the exchange and end-sets are plug and play; you’re not going to need to pay a phone vendor to service your system.

If you would like to receive more information regarding business phone systems or CarrierBid’s telecom consulting services, please complete the web form on the right side of this page.

Call us at


for immediate service or fill out the
form and we’ll be in touch right away.

  • Please describe how we can help:
    What services are you considering to drive your business higher?
    What challenges are you currently facing?