What Is PBX? Is It Right for Your Business?

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  • Private branch exchange (PBX) systems are business-grade, private telephone networks.
  • There are three types of PBX systems: analog, digital and hosted, all of which provide different features and benefits.
  • Hosted (or cloud) PBX has become the most popular type in recent years and offers nearly unlimited flexibility.

Researching phone systems for your business can be a daunting task. There are many different systems to choose from and an alphabet soup of abbreviations to learn. To determine which system type can serve you best, you must consider your employees’ business phone needs and where you can cut costs.

What is PBX?

A PBX, or private branch exchange, is a business-grade private telephone network that enables communication both within and outside your organization. PBX uses various communication channels, such as Voice over Internet Protocol (VoIP) and Integrated Services Digital Network (ISDN). A business phone system is differentiated from residential or cell phone services by its service offerings, with features such as call conferencing, extension dialing, business-hour settings for routing off-hours calls, customer waiting queues and hold music.

A PBX system is monitored through the use of a PBX switchboard, which processes the connections between telephones to facilitate a call. It also provides key information for accounting purposes and controls most of the features in business phone systems.


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Because most PBX systems are now automated, they’re sometimes known as private automatic branch exchange (PABX) to differentiate them from original PBX systems, which required a live operator to make connections. Because that practice has fallen out of use, though, the term “PBX” typically implies that the system is automatic.

Analog PBX

Traditional analog PBX systems, those with the need for live operators, are seldom used nowadays.? They connect to the public switched telephone network (PSTN) over plain old telephone service (POTS), which physically connects voice and fax calls via copper wiring. If you have an analog PBX system and wish to connect it to digital channels such as VoIP, you will need to use an adapter. Analog PBX systems are not expandable or upgradeable.

Digital PBX

The most widely used type of business phone system is a digital or IP PBX system, which sends voice and video communications via the internet. You can choose a traditional IP PBX or a premise-based IP PBX, which is a VoIP-based phone system that is housed physically in the office and connects phones over your office’s local area network (LAN), often using the same web network as your office computers.

To connect an on-premise PBX system to the PSTN, you will need either a Primary Rate Interface (PRI) or Session Initiation Protocol (SIP) trunking service. A SIP trunking service provides additional benefits such as disaster recovery, call accounting and advanced call routing. [Read related article: What Is SIP Trunking? Do You Need It for Your Business?]

Keep in mind that an on-premise PBX requires a large capital expenditure on hardware and other equipment as well as continuous maintenance and updating costs.

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You can expect to spend around $6,500 upfront on the hardware, phone, setup and licensing fees plus monthly service costs.??

IP PBX systems can be a more budget-friendly option by cutting out the equipment costs. They provide high-definition audio, call queuing and business-hour rules, and they can integrate with other applications like a CRM.

What is cloud PBX?

A cloud PBX system, also known as hosted or virtual PBX, is an IP-based telephony system provided by and accessed completely through the internet. A hosted system provides all PBX features, applications and services, and it maintains software in the cloud rather than on a server like digital systems.

Benefits of a hosted PBX system

With cloud PBX, your phone system, applications, features and phone service are all billed together, with automatic maintenance and software updates. Cloud PBX systems are significantly more flexible than traditional phone systems, offering advanced disaster recovery – i.e., more flexibility and resilience than a traditional phone system in the event of a disaster, like network failure or a hurricane – and geographic flexibility that allows employees to make calls from anywhere, anytime. This allows easy remote work for anyone in your company.

Cloud-hosted PBX systems also tend to be more budget-friendly than on-premise PBX systems because, like digital PBX systems, they do not require equipment or ongoing updates and maintenance. You can expect to spend around $2,000 in a one-time phone cost for a cloud PBX system.

Cloud PBX systems are easily scalable and generally support an unlimited number of users. Adding users is instantaneous. Setup and maintenance are typically fast and require no downtime.

Cons of a hosted PBX system

Hosted PBX systems require some equipment to get up and running if you do not already own the necessary components. For example, you will need to purchase IP phones, which generally require an Ethernet port and a large router.

Because hosted PBX systems are web-based, you must have a strong internet connection for communication to run smoothly. If your internet service provider is unreliable, you will likely have a frustrating experience. Make sure your ISP is strong and reliable and can support your communication needs before committing to a PBX.

You should also take measures to ensure your PBX system is secure. Because it’s hosted on the internet, your PBX system could be more susceptible to security breaches than a server-based system. Take the time to speak with hosted PBX providers about their security measures and how they protect your system. You should make sure they have both physical and network security, SIP endpoint security, toll fraud monitoring and detection, and a dedicated monitoring system that alerts you to any suspicious activity.

What questions should you ask before purchasing a hosted PBX system?

Hosted PBX systems are the newest entrant in the telephony market and boast several appealing features for small businesses. However, a cloud PBX may not be right for you. Here are some questions you should ask yourself before committing to hosted PBX:

  • What equipment do I already have (e.g., phones, servers, Ethernet ports or cords)?
  • What equipment will I need to purchase?
  • How much do I currently pay for my telephone services?
  • Can I save money by switching to hosted PBX? How much?
  • How strong is my ISP? Can it support a hosted PBX system?
  • What features do I need? What features do I not need?

Here are some questions to ask the provider:

  • What kind of support do you offer (e.g., 24/7, web chat or phone, setup support)?
  • Can I keep my current phone number?
  • What are the startup costs?
  • Are there any additional monthly costs?
  • If I have legacy telephone equipment, can that be integrated? How?

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