There are pros and cons of both hosted PBX as well as on-premise PBX. There are some fundamental differences to each of the systems and they feature advantages that should be known prior to making a decision on one or the other. The move to an IP-PBX business phone system is beneficial regardless of which system is ultimately chosen. However, there are differences and knowing those leads to a better VoIP phone system and a higher level of satisfaction for everyone. 

What is Hosted VOIP? 

Hosted VOIP or hosted PBX, otherwise known as an Internet phone system is one where the provider is responsible for housing the IP-PBX as well as handling the technology required to provide the services to the phone system. The desk phones will plug into a router and the calls, signalling, and features are handled through an IP-PBX server at the provider’s location. The provider of the hosted VOIP System charges a monthly user licence fee that can be inclusive of call minutes and other features as specified. Charges can also be at a per minute calling cost. Either one can be affordable depending on the rates. Be aware extended features can come with additional cost. 

Top Tip: Know the amount of minutes spent on the phone in a given month so that you can make effective cost comparisons.  

What is On Premise PBX? 

On-premise PBX is also known as the traditional PBX system that resides at a location, such as a computer equipment room or phone closet. Calls go through a traditional phone company as well as potentially voice over Internet (VoIP) using SIP trunking.  

Hosted IP-PBX versus On-premise IP-PBX 

There are some differences between the two options. Understanding benefits and limitations makes it easier to determine the best option for your organisation. Cost, scalability, and other considerations are laid out to make it possible to compare the hosted IP-PBX and the on-premise PBX within the same categories to learn of the greatest differences. 


Purchasing an on premise IP-PBX phone system involves buying hardware, which includes a server with the appropriate capacity to be able to connect the telephone service with the phones. Hosted IP-PBX only involves purchasing IP phones, though a router and network switch may be needed to ensure there is one specifically dedicated to VoIP. 

Hosted VOIP: 

  • No equipment cost and set-up cost 
  • All feature programming is done by the supplier 
  • No maintenance costs of the IP-PBX, but all on-premise and remote phones and network devices are the responsibility of the supplier 
  • Provider will install and program 
  • Provider will train staff on feature use and “best practices” 
  • Low monthly service cost 
  • Easy to add extra lines 
  • Upgrades and new features are included 
  • Extended features, like conferencing, may come with additional costs 

On Premise PBX: 

  • Higher initial cost and set-up cost 
  • Higher maintenance costs 
  • Lower monthly cost after expenses are covered (general 3-5years) 
  • Ability to get lower cost calls 
  • On-premise IP-PBX provider will qualify network 
  • On-premise IP-PBX provider will install and program IP-PBX 
  • On-premise IP-PBX will train staff on feature use and “best practices” 

Expansion Costs 

There are costs to consider for expanding the solution. Adding more phones to an on premise PBX is as simple as purchasing more IP phonesWith hosted PBX, however, additional IP phones are purchased and added to the service contract, this will increase the monthly cost, depending on the number of additional user licences. 

Positives and negatives for each system are laid out below. 

Positives for Hosted VOIP 

  • Providers have more resources than users, so new feature sets are possible 
  • New feature installation is handled by provider to avoid confusion 
  • Picking and cancelling virtual numbers is easy and fast 
  • Moving a phone system is easy. IP phone is plugged into a broadband connection. 
  • Patches and upgrades of the IP-PBX are handled by the provider 
  • Professional training is handled by the provider 
  • Loss of Internet or catastrophic event has no effect on operations because calls can be sent to voice mail or a mobile phone.  

Positives for On-premise PBX 

  • Having on premise PBX gives user control to create, adjust and delete users as desired 
  • New open source feature sets can be added without any license fees 
  • Current carrier does not have to be changed 
  • VoIP trunks can be added to save on calling costs 
  • Server ownership reduces expenses over time 
  • Professional training is handled by the provider 

Negatives for Hosted PBX 

  • Connections and voice quality are a result of Internet connection 
  • Loss of Internet results in loss of phone service (settings can be adjusted so that it goes to voice mail or routed to a cellphone) 
  • Flexibility of system is limited 
  • Customization of features may be limited 
  • Fees can be increased and cancellation fees can be charged 

Negatives for On-premise IP-PBX 

  • On-premise IP-PBX needs a provider who can manage it properly 
  • Expansions may result in complicated projects depending upon the provider 
  • On premise IP-PBX manufacturer could go out of business, leaving problems with managing root problems 
  • Technician may need to be called for upgrades and patches on software (and costs can be incurred) 
  • Loss of power or PBX failure will result in callers not being able to get through, which stops business operations unless you have a SIP provider 

Identifying the pro’s and con’s allows a company to determine the best phone system based upon the setup of their organisation and what risks they are willing to assume. Companies will benefit from one over the other, so it is a matter of making comparisons prior to choosing.