Premise-Based VoIP PBX verses Hosted PBX

Nowadays, many small to medium companies are thinking about and looking into Voice over IP (VoIP) PBX systems, if for no other reason than to save money over their existing or antiquated traditional phone systems. Making this transition requires a lot of analysis and decision making. One of the more important decisions is whether to purchase your own VoIP PBX or to go with a “hosted” or virtual PBX, which is a system hosted by a VoIP provider. There are good arguments for both solutions, including cost, voice quality and reliability. Let’s look at each solution to see which works best for your business.

Premise Based VoIP PBX

With a premise based VoIP system, you either install the IP PBX yourself, or have a dealer or VAR (value added reseller) Install it for you. The equipment sits in your company’s data center, connects to your LAN, and distributes calls to IP phones also connected to the LAN. You own the equipment and software, and administer and maintain it. Calls can come to the IP PBX from a communication service provider over traditional PSTN (Public Switched Telephone Network) lines or over your company’s broadband Internet connection, or both.

The premise-based approach has several advantages. Although the upfront cost is higher than with a hosted service, your company owns the system, rather than having to make payments forever. And with ownership comes increased control—you can customize or extend the capabilities of your systems more than you can with hosted service, provided you have the technical resources or are willing to pay somebody to do it for you. Another advantage is that it’s not necessary to rely solely on the Internet to deliver calls.  A premise based IP PBX gives you fallback capabilities should your Internet service be interrupted. Security is also higher because all messages and call data remain on your company’s premises.

But when compared to hosted solutions, there can be a significant disadvantage depending on the needs and resources of your organization. The biggest is monitoring and maintenance. Someone has to be available virtually all the time to make sure the system is running right. Someone also has to maintain and upgrade the software on a regular basis. Premise-based systems typically require maintenance contracts that add significantly to the total cost of ownership. Configuring remote users can also be somewhat complicated and thereby expensive.

Here are a couple of premise-based solution providers:



Here is a great post on VoIP-News comparing premise-based systems to hosted systems:


  • You will own the system
  • You can customize it to suit needs
  • Doesn’t necessarily have to rely on Internet for quality, reliability
  • Messages, prompts, records remain on your company’s premises


  • Significant costs for hardware and software maintenance contracts
  • Requires staff for monitoring and maintaining
  • Configuring remote users can be tricky
  • Hardware, software upgrades could eventually become necessary if your user numbers and/or call volume grows

Hosted PBX

Hosted VoIP, also known as hosted PBX or virtual PBX, runs on equipment belonging to and located in the data center of a service provider. Calls travel to your office via its broadband Internet connection. Hosted services can provide many of the features and capabilities that traditional phone systems offer. Users can make or transfer calls by dialing each other’s extensions. They can also make conference calls, park and pick up calls, and answer calls forwarded to groups of extensions, known as ring groups. That’s not to mention all the new capabilities that IP makes possible, such as listening to voice mail messages through e-mail or another online interface, or placing calls by simply clicking on names in onscreen address books.

This solution also allows you to create extensions in different locations, such as multiple offices or employee homes. Remote VoIP extensions act just like extensions of traditional PBXs in that you can call them directly by dialing extension numbers, page them, or include them in call groups. The real benefit of VoIP extensions is that you are not charged for calling between them, no matter where they are located.

The biggest benefit of the hosted approach is its low upfront cost. The only equipment you need to buy to get started is IP phones for your employees. You then pay a monthly fee for each extension, which typically includes packages of minutes or unlimited domestic calling as well as cheap international rates. This approach lets you increase the number of users as needed and eliminates some ongoing costs. There are no hardware or software maintenance contracts, for example, and no need for in-house IT staff to monitor equipment and fix problems.  All service, maintenance, and updates are managed and provided by your service provider.

Hosted services can also have considerable drawbacks, though. The monthly charges can add up, especially when they involve paying full rate for little-used but necessary extensions. And unlike equipment purchases, hosted PBX payments don’t end until you cancel the service, and upon termination of service the business is left with no associated asset. Security is another concern, since voice mail messages and call records reside on the service provider’s servers, not you servers. Call quality and service reliability can also be significant worries, since both are totally dependent on your Internet connection(s).

Today, their are many hosted PBX providers. Here are a few:



Here is a great blog for finding out all you need to know about hosted PBX:


  • Low upfront costs
  • Increase capacity exactly as needed
  • No need for maintenance contracts or staff
  • Remote extensions


  • Quality, reliability depend on Internet
  • Pay full rate for little-used extensions
  • No end to payments, no eventual ownership of equipment
  • Messages, prompts and call records reside in service provider’s data center

A Third Alternative

Another alternative, sometimes called “hybrid-hosted,” combines the key elements of hosted and premise-based systems. You buy and own the IP PBX equipment, which resides at your premises. But the vendor monitors and helps manage the equipment from its data center. This arrangement offers most of the benefits of both hosted and premise solutions, while doing away with most of the disadvantages of both. However, it is also by far the most costly.

As with conventional premise solutions, hybrid-hosted systems lets you pay once to purchase the equipment rather than paying forever for extensions, some of which may see little use. And messages and call data remain within the company.

And as with hosted solutions, hybrid-hosted systems significantly decrease the hassles and headaches of premise solutions. Part of it is ease of use. Administrators and managers can access their systems from anywhere via web browsers, rather than having to be on premises or to have configured special routes through their firewalls. Setting up remote users is simple too, and linking branch offices is often a one-click process. Users can even configure their own extensions from wherever they are.

Perhaps most important, the hybrid-hosted approach alleviates monitoring and maintenance headaches. From its data center, the vendor proactively watches the customer’s hardware and software, 24 hours a day, seven days a week, for impending failures, and takes action before they happen. It also transparently maintains the software, pushing out automatic updates without the need for someone at your company to do anything. The vendor can also choose to back up call records and generate reports, taking a significant load off the premise equipment. And it also backs up the customer’s configurations (though usually not its voice mail messages or prompts due to privacy concerns), allowing for easy recovery in case of disaster.


  • You own the system
  • Can customize to suit needs
  • Messages, prompts, records remain on company’s own premises
  • Vendor monitors for faults 24/7
  • Vendor backup of customer configurations with easy disaster recovery
  • Automatic software upgrades
  • Easy remote administration through web browser
  • Easy setup of remote users
  • One-click linking of branch offices


  • Upfront costs higher than with hosted solutions
  • Hardware and software maintenance contracts recommended
  • Hardware upgrade eventually necessary if user numbers grow
  • Support and management contracts can be quite high, eliminating the savings you would gain from using VoIP.

William Harrel –

28 Replies to “Premise-Based VoIP PBX verses Hosted PBX”

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  3. I go for the hosted PBX due to the following advantages:

    • 24/7 maintenance
    • Cheaper service work
    • Communication-related disasters are handled by the hosting provider
    • Companies can focus more on their business activities and goals
    • Low initial investment
    • Maintenance and upgrades are taken care of by the hosting provider

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