PBX vs VoIP: Which One Is better?

With the variety of communication devices, smartphones, computers available, getting confused with terms and phrases is common. The latest technologies are always accessible at your disposal but getting the best one for your organization oftentimes poses a challenge. 

Providing a budget for the cost of business phone systems will eventually become your priority. From the start, you should determine to find the right system that will address the ever-changing communication needs of your office. Choosing the ideal phone network is a major decision that every business leader will make at some point. 

PBX vs VoIP? Which is better?

PBX vs VoIP: Which one is better? Which should you pick for your business?

Forty years ago, companies were not faced with many different choices of communication systems. They all subscribed to traditional landline phones. With the advent of the internet, wireless phones, cloud-based devices, and other similar technologies, organizations gained alternatives. 

When setting up an office phone system, you are given two choices: PBX (Private Branch Exchange) or VoIP (Voice over Internet Protocol). These are the main types of communications with which you should become familiar. 

In this article, you will learn what you need to know about PBX and VoIP, which many use interchangeably out of confusion. 

Read on to learn more about these two systems — their definitions, business uses, costs, benefits, and more. 

The details provided below will help you decide which option is better for your business setting. 

What is PBX?

PBX is a telephone network that handles incoming and outbound calls within your company or organization. Built to manage a high volume of calls, this system was initially referred to as the communication hardware housed in a physical site (on-site), such as in an office room. 

Breaking down the acronym PBX will help you understand better what the term means, and its original definition. 

The “P,” which stands for Private means the system is not the same as its predecessor known as the public switched telephone network (PSTN). 

Also called plain old telephone service (POTS), PSTN is the infrastructure for public telecommunications that has existed since the invention of the telephone in the 19th century. This public network offers telephony services for the residential market. 

The “B,” which is short for Branch, refers to its feature. Although the PBX system operates separately, it can link to a PSTN that provides communication circuits called “trunk” lines. The endpoints that connect to these circuits to separate the network traffic are termed “branches.”

The “X,” which stands for Exchange, simply means the connections taking place through a switching network are capable of sending and receiving a large number of calls. 

 

PBX: A short history

In the early period over six decades ago, the PBX system was manually run by human operators to transmit calls. These manual operators needed public switchboards to transmit calls internally or externally in a private company. 

The switchboards enabled the sharing of central office trunks between different telephones across the organization. PBX lines could likewise link to PSTN, making communications outside of the private office possible 

In that era, it was common for an office to have multiple telephone devices, each with a separate phone line. But every call incurred a charge, including interdepartmental calls that cost the same as outside calls. As a result, company telephone expenses were considered high particularly to an organization that required a large number of these devices for its regular operations. 

Over time, the PBX network improved with the emergence of automated systems that make switching easier and faster.  New features were introduced, such as extension dialing, call forwarding, line hunting, and two-way calling, to name some. 

The rising popularity of digital technology and the internet before the end of the 20th century resulted in the growth of data networks and packet switching. This advancement in telecommunications paved the way for the arrival of a new type of PBX known as IP PBX, a phone system that runs on the internet.   

 

On-premise PBX vs Cloud PBX 

Currently, two well-known PBX systems on the market are on-premise PBX and cloud-hosted PBX.  

On-premise PBX 

According to the article posted on Techradar titled, “PBX vs Cloud PBX: What’s the difference?” an on-premise PBX system is regarded as traditional and needs a physical site within which to function. To set up your business phone system with the on-premise PBX, acquiring equipment such as servers, desktop phones, networking devices, and phone lines is required. All of the hardware should be placed in your office building to make the network operational. 

You will take charge of the installation, maintenance, and updating of an on-premise PBX system. Large businesses and organizations having their own sufficient property space and well-trained IT groups use this type of PBX platform.  

The article adds that an on-premise PBX system works by routing calls through standard phone lines, including SIP (Session Initiation Protocol) trunking, the Global System for Mobile Communications (GSM), the Integrated Services Digital Network (ISDN), and the PSTN. 

SIP trunking is a VoIP technology that enables you to conduct phone calls via the internet. GSM is a digital network that mobile phone users in Europe and other parts of the world (except for the United States) use. ISDN is a high-speed digital network that relies on digital transmission to conduct phone calls. PSTN is already discussed in the preceding paragraphs. 

Cloud PBX 

A cloud-based PBX is a system that connects all of your phones to third-party VoIP data centers. Customizing the system to align with your business requirements is all that is needed.  The hosted VoIP service provider will be responsible for the maintenance of the virtual network. 

This type of PBX setup is quick to install and easier to use. The service vendor will provide and manage the network equipment, servers, licensing, and other related components, which are based off-site. There’s no need for you to purchase any of them. Paying the service provider for its software and business phones is all you should do. 

With this phone infrastructure, making and receiving phone calls is carried out through VoIP. What’s more, not being able to access the phone system while away from your office is no longer an issue. You can conduct calls anytime and anywhere with the use of smartphones, tablets, VoIP phones, laptops, and other hand-held devices. This system is ideal for businesses that depend on remote teams or other similar work setups.  

 

How do businesses use PBX?

In an article posted on the PbxMechanic website titled, “Why Some Companies Still Choose a Digital PBX,” many businesses continue using the PBX system due to its simplicity and their familiarity with it.

Several small to medium-sized (SME) companies still choose their digital PBX by comparing costs, asking some feature questions, and identifying the advantages over their old phone systems. 

These SMEs are more comfortable with PBX because the system can easily connect to their current phone lines without the hassles of canceling contracts, moving carriers, or port numbers. Their business decision is based on the notion that simple is better and too much technology could complicate things.

The article notes that traditional small businesses, including law service companies, hardware stores, insurance offices, parts stores, and pizza franchises still use PBX solutions from established telephone carriers to set up a two-line phone system. They typically consist of around five employees and consider investing in the latest communication technologies a financial burden.  

According to the blog posted on the sip.us website, the firms that might find the PBX system useful are tourism and hospitality operators, family businesses, and e-commerce operators. They use the system to keep their operational costs low, add phones and numbers while expanding, respond quickly to frequent inquiries, and route customer calls to the right team using an autoresponder. 

Compared to traditional phones and cell phones, the PBX system, whether it’s of an on-premise or a cloud type, offers a variety of features, such as conference calling, call recording, call holding, call forwarding, music on hold, call queuing, and other features. 

 

On-premise PBX: Pros and Cons

The Techradar article points out that the main benefit of using an on-premise PBX system is more control. For one, the desktop phones or handsets, servers, networking devices, and other hardware parts that comprise this network are located inside your office and within arm’s reach. 

This setup does not require the services of a third-party hosting vendor and allows you to modify or configure the system settings as well as immediately fix any issues. Furthermore, a third-party hosting company will be unable to acquire the critical or core hardware components of your on-premise PBX, keeping it secured from outside intrusions. 

Another advantage is the cost-savings benefit you will enjoy over the long run. As long as you have the budget for the high upfront costs when obtaining the essential hardware, setting your on-site PBX system is recommended. Certain phone standard lines, such as SIP trunking, are protected from future price fluctuations or hikes and reduce communication costs in the long term. 

The article goes on to say that the on-premise PBX system’s main disadvantage compared to the cloud-based counterpart is the initial significant investment and shouldering the ongoing cost. Aside from the initial purchase of networking devices, servers, telephone equipment, and the like, you will also have to spend money on maintaining and updating the on-site system in due time. 

Moreover, the on-premise PBX network is made up of large telecommunications equipment that can be a challenge to store, especially for an office with limited space. This system is also impractical for smaller businesses or organizations that lack the budget to form an in-house IT team that will manage and maintain the technology. The setup is quite complex to install among non-IT employees. 

 

Cloud PBX: Pros and Cons 

Like other technology platforms, a cloud phone system also has pros and cons.  

According to the Techradar blog, the cloud PBX system offers multiple benefits. Among the advantages: affordable, fast, and simple to set up; feature-rich; flexible and scalable; easy to use; and physical space is irrelevant.

Notwithstanding its edge over the on-premise system, cloud PBX has some drawbacks. One of these is its reliance on the internet. This means that if your connection is unstable, your VoIP phone calls will be adversely affected and encounter technical issues, such as dropped or patchy phone calls. 

Adopting the cloud PBX network means less control over your phone system. It will also take some time for your workforce to get familiar with the cloud-based system. Training and upskilling your employees to be proficient in using a phone-enabled virtual PBX must be a priority. This technology functions differently from standard desk phones, landlines, and cell phones. 

 

On-premise PBX or cloud PBX? 

The best answer to this question is: it depends on the needs and the size of your enterprise or organization. If you lead a business with a large number of employees, loaded with a sizable budget to spend on expansion and improvements, possessing ample physical location, and equipped with skilled IT professionals, then an on-premise PBX system is the way to go.

If you run a business with a handful of staff, limited funds, and equally limited real-estate space, then a cloud PBX is the ideal system to adopt. 

 

How much does PBX cost?

The cost of a PBX varies depending on whether the system is on-premise or cloud-hosted.

According to a white paper on hosted versus on-premise phone systems by Canadian-based telecommunications company Primus.ca, a PBX consists of two costs, upfront and recurring. 

The upfront costs refer to the equipment and installation. They include IP telephone system/hosting fee, voicemail, hard terminals (IP Phones), soft terminals (software phones), remote gateways, training, software upgrades for IP PBX, software upgrades for voicemail, and other changes. 

The recurring costs pertain to operations and administration, network access and toll charges, and human resources. These costs are broken down into different items, including maintenance contract, remote monitoring contract (for phone and voicemail), access costs (over multiple locations), toll charges (domestic and international), system administration management, technical support, security management, and contingency planning management.    

Titled “Hosted vs.On-Premise PBX: A Comparison Of Direct Cost & Indirect Benefits,” the white paper listed three scenarios.  

Firstly, the customer who chose the hosted PBX purchased the IP phones instead of renting them.

Secondly, both scenarios expect certain growth in terms of user numbers over the five years. As such, an increase in administration and support costs due to the growth (and increasing technical problems in the case of the on-premise system) is also assumed. 

Thirdly,  toll charges for the hosted PBX are a small part of what these costs are for the on-premise system. Inter-location long-distance charges are taken into account only for the on-premise case. 

 

Cost analysis:on-premise or cloud-hosted PBX 

The study shows that the total cost of ownership (TCO), which is the sum of upfront costs plus five years of recurring costs for the on-premise PBX, is placed at almost $490,000. The TCO for the cloud PBX system is estimated at around $237,000.

The conclusion is made that after five years, the hosted PBX solution generates a substantial savings of nearly 52% (close to $253,000) as compared to the on-premise system. The estimated savings can be used for more productive projects to improve the bottom line. 

The white paper notes that for the five years, recurring maintenance costs and toll charges are significantly lower for the PBX cloud solution.

 

What is PBX software?

VoIP-info.org, a website on VoIP having over 100,000 registered contributors and 50,000 web pages, defines PBX software as a technology covering various elements, including system control, user interfacing, and switch signaling. 

The software relies either on the amount of hardware installed at a particular site or the nature of the PBX system already in place. Specifically, an on-premise PBX will be a combination of hardware and software while a hosted or cloud PBX will be based on pure software or web-based software. 

The site says numerous programs that can operate a PBX server. To identify the type of PBX software required, you should consider the PBX system type, the hardware present, the VoIP service compatibility, and the operating system. 

Described as comprehensive and customizable, PBX software is developed for a particular task in a PBX network. The tasks include billing, call center monitoring, computer telephony integrations, development tools, recording, routing systems, secure communications, softphones, video conferencing, and voicemail clients. 

There are two types of PBX software: proprietary and open source. An established company, such as a large telecommunications provider, owns the proprietary systems and offers them to businesses. Open-source software is also developed by a company but offers it for free so that it can be modified and enhanced by interested individuals or parties.  

According to the site, PBX software specializes in four areas: open source VoIP software, VoIP software, call center software, and PBX system software. Some PBX software companies are Avaya, Cisco, Asterisk, FreePBX, Mitel, and Kamailio. 

 

What are the technical requirements for PBX?

Startups.co.uk, an online resource for small businesses, lists the main requirements for setting up a PBX system. 

For an on-premise PBX platform, you need PBX phones, switchboard/server, gateways, ethernet switch, and internet connection.

PBX phones are telephone devices that offer the features of a regular phone with advanced functions, such as video calls, touch screens, 3-way calling, text messaging, and more. A switchboard is a controller to make connections between callers while a server is a device that handles the calls by routing them from one line to another. A gateway is a piece of hardware that serves as a channel between the PBX system and VoIP while an ethernet switch is a networking gadget that links wired devices in your business premise

For a cloud PBX system, you need a fast-speed and high-quality internet connection, softphones and PBX phones (also known as hard phones), technical or IT support, and IVR plan requirements.  

A softphone is a software-based phone that can be installed on mobile devices or desktops. It lets you make and receive phone calls over the internet without the physical phone. IVR, or interactive voice response, is an automated phone system feature that provides callers with choices through a menu. 

What is VoIP?

In its basic definition, VoIP is a technology that sends voice data through an internet connection. 

When your phone system is based on this solution, the voice is instantly changed into file data, where it is condensed and turned into data packets. These packets are transmitted online to a VoIP provider, converting and directing them to the other phone line. 

Financial website Investopedia defines VoIP as a communications technology that enables users to conduct telephone calls via internet connections rather than through analog telephone lines. Cell phones or landlines linked to the internet can make and take VoIP calls, which can likewise be done on desktop computers or laptops using speakers, headsets, or microphones. 

VoIP disrupted the telecommunications industry that heavily relies on physical networks such as wires and cables. This technology substantially decreases the market demand for traditional phone lines and services, which are in danger of obsolescence.  

Research and Markets, an Ireland-based market research firm, sees the worldwide market for VoIP services rising to almost $103 billion by 2026 from $85.2 billion in 2021, with a compound annual growth rate (CAGR) of 3.8% in the next five years. 

The market growth is not only because of its cost-effective way of communication but also because the COVID-19 pandemic affected many sectors, particularly retail, BFSI (banking, financial services, and insurance), education, and information technology. Most companies from these sectors allowed their employees to work from home, and schools from all levels began offering online classes due to lockdowns and restrictions. 

VoIP: A short history

According to the article posted on the UC Today website titled, “What is VoIP and How has it Evolved?” the invention of VoIP in 1995 is attributed to Alon Cohen, co-founder of VocalTec and co-developer of the audio transceiver. VocalTec is said to be the pioneer in the VoIP industry, offering the service worldwide in the mid-1990s. 

In the roughly 25 years since its inception, VoIP technology has dramatically progressed. In its early days, VoIP was meant to be an affordable substitute for making long-distance calls, which were expensive when using the traditional phone lines. Nowadays, this technology is generally the preferred communication system, offering quick and cheap calls from anywhere in the world using an internet connection. 

The article notes that VoIP initially was an ideal means to get hold of the latest communication technology. The system was dependent on dial-up and leased line internet connections, both of which completely relied on the PSTN network. In an odd quirk of fate, this traditional telephone service provided the transmission of data that made voice calls over the internet possible. 

The arrival of broad bandwidth, or broadband connection, coupled with the commercial availability of line-free connectivity enhanced the capabilities of VoIP. Broadband offers a high-speed connection and uninterrupted connectivity that paved the way for VoIP companies to offer other services, such as video sharing and video calls. One popular VoIP service developed during that time was Skype. 

 

How do businesses use VoIP?

Businesses use VoIP for several purposes, one of which is for nearly charge-free phone calls. Using this technology, you can communicate verbally and visually with customers or suppliers without incurring high charges for long-distance calls. 

In his article posted on the Business 2 Community website, Amit Dua, co-founder, and CEO at India-based IT service firm Signity Solutions says VoIP is free from physical restrictions and can be used for voicemails, text messages, and videos. 

He adds that VoIP is also used for three purposes — as area code, as a toll-free number, and for scalability or mobility. 

VOIP used as area code is one of the main reasons why businesses changed to VoIP numbers. The technology enables you to have a local presence without the need to put up a physical office in the area. It gives you a local appearance even if your physical office is located away from the area and reduces call costs. 

When used as a toll-free number, VoIP will improve your business credibility and trust. A toll-free number can be quickly directed to another number and can simultaneously ring multiple calls on different devices. Your employees can even answer the call with any connected device. 

Businesses also use VoIP for scalability and mobility. Since VoIP numbers are not registered to any landline, they offer flexible features. Aside from receiving calls, the same VoIP numbers can be used for voicemail, fax, text messaging, and video conferencing.

 

VoIP: Pros and cons 

VoIP is an ideal option for established businesses that want to decrease phone costs. This technology also enables you to adopt the cloud platform and allows you to pick the best cloud-based phone system. 

MoreBusiness.com, an online publication, and resource for small businesses lists some of VoIP’s advantages over other systems. These are:

Lower cost — when using a traditional landline phone, you are charged a certain rate for every minute spent on a call. More call time means higher charges for you to incur. VoIP, on the other hand, offers unlimited calls at a fixed rate. A cloud-based phone allows you to call your customers, clients, suppliers, and partners without extra charges. This feature enables VoIP to provide the best multi-line phone system for small businesses. 

Easy to set up — since VoIP operates via the internet, installing additional infrastructure is not needed. Many VoIP service providers offer system updates or configurations that can be accessed from your office devices. Also, setting up a VoIP-enabled phone system takes a few days unlike a traditional system (such as on-premise PBX) that takes a month or so. 

Better accessibility – VoIP is neither restricted to a landline nor a specific device. You can easily communicate with anyone using your smartphone, computer, tablet, or softphone. This technology becomes more relevant when your business needs mobility and portability.

The blogsite notes a few disadvantages of VoIP. One is that this technology needs a reliable power source and a stable internet connection. If either of them encounters an issue, then your phone system will be disrupted. 

VoIP works best with a high-speed internet connection. Low bandwidth connections, which are still present in some parts of the world, result in poor call quality, frequent dropped calls, lagging, and other latency issues. 

Another disadvantage of VoIP is exposure to cyberattacks. Online technology publication ZDNet reports that Canada-based VoIP provider VoIP.ms faced a distributed denial-of-service (DDoS) attack that lasted for a week. 

Offering IP services to businesses mostly in the US and Canada, VoIP.ms says it has more than 80,000 customers in 125 countries. Previously, two UK VoIP companies were also hit by similar attacks, according to ZDNet.  

DDoS is a move cyber attackers use to swamp a server, website, network, or service with massive internet traffic. The system is paralyzed or goes down temporarily if the traffic can flood the server, website, network, or service. 

 

How much does VoIP cost?

According to CostOwl.com, an online price resource for various products with more than 750,000 visitors, the average monthly price paid for VoIP phone service is $25 per user. An IP phone is priced at around $500 but a desk phone does not use VoIP.

With the price, you get the features that a traditional PBX phone system has, such as an auto-attendant, caller ID, call waiting, call forwarding, conference calling, call monitoring, call recording, voicemail, voicemail to email, and web-based management.

The VoIP monthly prices range from $20-$50 per user. The prices of the different desk IP phone systems vary, between $200 and $1,500 per phone. However, special phone systems that don’t require VoIP can be upgraded to enhance user experience. 

The website points out that VoIP phone system costs are widely varied. Estimating the nearest amount depends on several factors, such as your chosen features, your current data network, and your telephony infrastructure. 

It should be noted that the upfront costs for hardware and installation can be significant. There is also the monthly (or annual) service fee to take into account. In the long run, however, your VoIP-based business phone system will make you pay less for inter-office calls, administrative services, and long-distance calls.

PBX vs VoIP: And the winner is…

The on-premise PBX system is best if your business generally receives a low volume of phone calls, or in a scenario where you don’t need the sophisticated features of an IP-based system to help enhance your communication activities. 

If your organization has an existing on-premise or cloud PBX system, then keeping it is the best option. You have already made a substantial investment in money, time, and energy to install that system, continuing to use the network is more feasible and cost-effective than setting up a new one. 

If it’s your first time installing a business phone system, then a VoIP system is highly recommended. As mentioned previously in this article, this communication technology is more affordable and flexible, needs no bulky equipment, and offers advanced but useful features. 

Additionally, if your business is reliant on remote or mobile employees, requires multiple locations, experiences seasonal changes in call volume, or any similar reason, then you should think seriously about having a VoIP phone system. 

As a final analysis, it is best to speak to a trusted phone service provider to help weigh your options. They can certainly give you the financial and technical advice, such as the benefits and drawbacks of a cloud-based phone system and a PBX system, that you will need before finally making your decision.