Telco Ltd. Blog

Hosted IP PBX: a good idea?

A Hosted PBX (sometimes referred to as Hosted IP or IP Centrex) is a relatively new phenomenon in the telecommunications world, springing up as a result of a promising new technology, Voice Over IP (VoIP).

A Hosted PBX differs from a traditional PBX or key phone system in that businesses using a hosted PBX are “outsourcing” their phone system to a service provider. This appears on the surface to provide a number of advantages:

• Your phone can follow you wherever you go
• You don’t have to worry about equipment maintenance
• Your initial out-of-pocket costs are lower

There are certain things, however, one should know in order to make a well-informed decision when selecting a solution for critical telephone communications.


Using a hosted PBX means that all of your telephone calls will travel over an IP network, often the public Internet-even your intercom calls to other phones in the same office! This is the same Internet that tends to bog down during certain periods of the day. When you browse the Internet or check your email, many of the common day-to-day interruptions go unnoticed-if your connection is suffering for a few seconds or fractions of a second, you won’t notice a problem. VoIP, on the other hand, is very unforgiving about data transmission delays, and you will experience a loss of quality, or even dropped calls, on a regular basis.  Some providers mitigate this by providing a point-to-point connection between your office and their facility.


At first glance, it may seem that you will save money by going to a hosted PBX solution rather than purchasing your own equipment. But will you really save money? The going rate per seat, per month in a hosted PBX solution is approximately $50. Multiply this by the number of users over 5 years (the average time period a business will use their phone system), and you may be surprised at the results. Let’s take an example of 15 employees:

$50 per month x 15 employees x 5 years = $45,000!

If your goal is to avoid large upfront costs and have a reasonable, stable monthly cost, you would financially be far better off doing a lease purchase of an in-house phone system.


When you sign up for a hosted PBX solution, you should understand that your service provider will not be dedicating a server to your business; on the contrary, you will be sharing a remote server with hundreds or even thousands of other businesses. This is important because many of the advanced features offered by standalone phone systems require significant computing power and resources. Because of this, you will notice that if you compare the feature set of a hosted PBX provider against that of a standalone phone system, many features and capabilities will be missing from the hosted PBX solution or be at an additional monthly cost, such as conferencing, call recording, automatic call distribution, presence management, unified messaging, service observe, enhanced Caller ID functions (such as attaching the Caller ID of a caller to voicemail messages) and more. Additionally, because most hosted PBX providers utilize non-proprietary IP phones, they must offer a “lowest common denominator” feature-set. The number of buttons available for lines, extensions, and features is usually lacking, as is the number of button colors available (ESI, our manufacturer of choice, offers tri-colored buttons; most IP phones used in hosted IP solutions have either dual-colored buttons, or in most cases, only one color).


Because each phone in a hosted IP PBX requires a certain amount of bandwidth, you will ultimately be limited on the total number of phones that you can add to your setup. The more phones you have and are in use, the greater the bandwidth requirements. Additionally, the phones will have to compete with the computers on your network for bandwidth-when many phones are in use, you may notice that the voice quality suffers considerably. In many cases, you may purchase equipment that supports Quality of Service, or QoS to alleviate this and give priority to the phone traffic. The downsides to this are that good hardware to implement this properly can be expensive, and in addition, ensuring that the phones have the bandwidth they need will cause your computers to run slower on the Internet.


In a hosted PBX, voice traffic travels off of your network onto other networks-your service provider’s network at the least, and in most cases over the public Internet. There, your conversations can be vulnerable to interception and eavesdropping. If your hosted IP PBX provider implements encryption on all calls, your risk is somewhat mitigated in this area.

911 Service.

Something most VoIP providers don’t like to talk about is 911 service. The reason for this is that some of them still don’t have it. Fortunately, since 911 compliance has been made a federal mandate, the VoIP service providers are making rapid progress toward this goal and many of them have implemented it in some fashion. Still, you should be aware that even for providers who have implemented a solution, there will be at least one extra layer of separation between yourself and emergency services. This is because the provider has to either hire staff to handle emergency calls or contract it out to another call center, but in either case the party you reach when you dial 911 is not a governmental 911 dispatch center.

Provider Longevity.

VoIP services is a new and expanding area of commerce, with most companies offering services being fairly new business entities (or at least being relatively inexperienced at offering these particular services). How long has the company you’re considering been in business, and perhaps more importantly, what will be their condition a year or two from now? If they do go out of business, will your service remain intact? You can always port your phone numbers to another provider, but if the hosting company is unresponsive you could experience delays (perhaps on the order of weeks) in that respect.

Monetary Benefits.

Keep in mind that there are certain tax benefits associated with having your own in-house phone system equipment.  When you own your own phone system, it is also considered an asset, improving your company’s financial worth.

Final Thoughts.

Hosted IP providers often tout the portability of their phones, so that your phone can go with you wherever you go, as long as there is a broadband Internet connection.  But if this used to be an advantage for them, it is no longer (ESI has, for example, three offerings that will go anywhere you do: a desktop IP phone, a cordless IP phone, and a PC-based “soft” phone).

Hosted providers often also tout low long-distance rates in their offerings.  But it should be noted that this is more a function of your dialtone/long distance service than it is the choice of an in-house versus hosted PBX.  There are several providers here in the Phoenix area (and probably nationwide) that are offering free and low-cost long distance in their plans.

When it comes to critical applications like telephone communications, having an in-house PBX (phone system) is the clear winner.

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