VoIP (Voice over Internet Protocol) is a technology that allows businesses to make phone calls with a broadband internet connection, instead of using a telephone landline. As companies grow increasingly dependent on the internet to do their business, VoIP has become more and more appealing for organizations of all sizes and industries.

According to market research and advisory firm Zion Research, the global VoIP industry is expected to surge from $83 billion in 2015 to $140 billion by 2021.

Despite the move towards hosted VoIP, many companies have chosen to remain with an on-premises PBX (private branch exchange) solution.

In this article, we’ll discuss the definitions of hosted VoIP and on-premises PBX and then go over the pros and cons so that you can make the right choice for your business.

What is hosted voice?

The term “hosted” means that the VoIP provider is responsible for hosting the services in the cloud. In other words, the telephones at your business headquarters use the internet to connect to the equipment hosted by the VoIP provider at an off-site location.

Most hosted VoIP providers use a recurring monthly or annual pricing model, which includes a predetermined number of minutes as well as a given set of features. However, some providers offer a per-minute pricing model for additional flexibility.

It’s worth noting that many hosted voice offerings are part of a “unified communications” solution that combines phone, email, fax, chat, and video capabilities. Indeed, some companies treat the terms “hosted voice” and “unified communications” almost synonymously.

What is on-premises PBX?

A private branch exchange (PBX) is a private telephone network that manages the internal and external phone calls of an enterprise.

As the name suggests, “on-premises” PBX means that your business is responsible for maintaining the necessary hardware on-site. You have ultimate ownership of, and responsibility for, the network.

Hosted voice vs. on-premises PBX: advantages and disadvantages

Let’s look at the pros and cons of each option.


Using an on-premises PBX solution is typically much more expensive when first starting out. You need to purchase your own hardware, set it up, and perform your own maintenance.

Meanwhile, hosted VoIP uses an OPEX cost model, so your monthly expenses are much more predictable (and often lower).

For example, small businesses that switch to VoIP can reduce the costs of local calls by up to 40 percent and the costs of international calls by up to 90 percent.


If you’re just starting out and are unsure which option is best for you, then you should likely choose a hosted VoIP solution.

Your VoIP provider shoulders all the load in terms of future work and expansion, including concerns such as maintenance and software updates. This gives you a great deal more flexibility.


The biggest question mark in terms of hosted voice is reliability.

Because VoIP relies on an internet connection in order to function, VoIP customers will be left without phone service when their internet goes down or when they experience a power failure.

Before option for a hosted VoIP solution, be sure you have a reliable internet connection.

Final thoughts

If your company has the IT expertise required to perform the installation and you’re willing to handle all of the responsibilities, then an on-premises PBX may not be a bad choice.

For most businesses, however, the lower costs, lessened maintenance obligations, and increased flexibility of a hosted VoIP solution are enough for them to make the switch.

Need some expert advice about whether hosted voice or on-premises PBX is right for your organization? The right managed services provider can help make the decision a lot easier. Contact your MSP for some good advice on the solution that best fits your situation.

If you’d like to keep reading, check out these additional options for cloud communication infrastructure.