What is a PBX Phone System? All you need to know

Lola BarbierLast updated on March 18, 2024
8 min

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  • PBX is an internal phone network that manages calls and enhances communication efficiency within an organization.

  • There are different types of PBX: traditional, IP, and hosted.

  • On-premises PBX has slightly lower costs than hosted PBX but has limited features.

  • VoIP is a cloud-based alternative that offers more benefits over traditional PBX.

For small businesses just starting out, traditional phone service or BYOD (bring your own device) might fit the bill. But as your business grows, so do your communication needs.

You need a way to give employees their own phones, without purchasing dedicated phone lines for everyone in the building. You need an affordable way for team members to talk to each other, answer work calls on their mobile devices, and perhaps work remotely. In other words, you need a business phone system.

While today several options are available, PBX phone systems were the first to free businesses from the plain old telephone service (POTS). Since then, new cloud-based telecommunications options have emerged, but many businesses still rely on these older PBX systems or their newer, more sophisticated counterparts: IP PBX and hosted PBX.

So, what is PBX? What are your other business phone options? And which solution is right for your team and customers?

What Is a PBX Phone System?

A PBX (Private Branch Exchange) phone system is a private telephone network used within an organization. It allows users to communicate both internally (within the organization) and externally (with the outside world). PBX systems manage calls, facilitate features like voicemail and call routing, and enhance overall communication efficiency within a business.

How Does a PBX (Private Branch Exchange) Phone System Work? 

PBX phone systems, specially hosted PBX give businesses their own mini-switchboards and the ability to make free internal calls. Modern PBX systems look more like computer servers and automatically direct callers to the correct extension.

With a PBX phone system, everyone in your company can have their own desk phones but still share physical phone lines. Some modern PBX systems also let you manage voicemail, transfer calls, useIVR menus, and line up callers in a queue when phone lines are busy.

Types of PBX Phone Systems

With traditional PBX, all phone calls go through the phone company's analog network, but modern PBX phone service leverages internet calling and cloud computing.

There are three main types of PBX systems:

1. Traditional PBX

With a traditional PBX system, your phone service comes from the telephone company, but your PBX hardware manages those phone lines. It accepts incoming calls and routes them to individual extensions, assigns lines to team members making outgoing calls, and handles internal calls between desk phones.

A traditional PBX system requires physical office space and significant IT resources to manage and maintain it. While it’s not the best option for small businesses, larger organizations that invested in PBX years ago still rely on this legacy technology.


Internet protocol private branch exchange (IP PBX) is a system that enables you to make and receive phone calls using your internet connection. You still have a PBX hardware device, but the VoIP (Voice over Internet Protocol) service replaces your existing telephony service.

VoIP has become a popular alternative to PBX because it costs less than large bundles of telephone lines and frees users from their desk phones. VoIP works from any internet-connected device and lets you add other communication channels, such as SMS text messaging, videoconferencing, and instant messaging. It also offers additional features, such as call recording, call center analytics, and CRM integrations.

If you already have a PBX system but also want the benefits of VoIP, IP PBX lets you combine the two using a process called SIP (session initiation protocol) trunking. SIP trunks replace traditional phone lines so you can connect your business phone system to the internet.

3. Hosted PBX

Hosted PBX (also known as cloud PBX) is the latest iteration of PBX phone systems. Unlike traditional PBX systems, there's no need for physical equipment onsite. Your phone system is hosted and managed by your service provider so you no longer have to dedicate any office space or IT resources to telephony. Instead, you manage your private cloud-based phone network from a web portal.

As with other cloud services, your team can access hosted PBX from anywhere using any internet-connected device, including an internet browser, a mobile app, or a desk “softphone.”

On-Prem vs. Hosted PBX: Pros and Cons

How do on-premise PBX solutions (traditional PBX and IP PBX) compare to a PBX phone system that's hosted in the cloud?

On-prem PBX pros:

  • Lower monthly costs: since you're only paying for PBX service and maintaining the hardware on your own, it typically costs a bit less per seat than hosted solutions.

  • No internet required: if your internet service isn't reliable, this is a definite advantage. 

On-prem PBX cons:

  • Limited calling features: this legacy technology doesn't support new and emerging calling features.

  • Hardware maintenance burden: you own the technology, so you pay to maintain the hardware and fix it when it breaks.

  • Potential for downtime: if there's a problem with your PBX, or if IT needs to perform updates or move servers, your phone system goes down.

  • Physical server space: you'll need a server room, or at least a dedicated closet, to house the hardware.

  • Vendor lock-in: switching from one PBX vendor to another means buying new hardware and new phones, which can translate into high upfront costs  for many businesses.

Hosted PBX pros:

  • No up-front costs: you don't need to purchase and maintain hardware. You'll just have a relatively low monthly service fee.

  • No physical space required: you don't need servers, so you won't need a dedicated room or closet.

  • Business continuity and disaster recovery: cloud PBX vendors typically have redundant data centers in multiple locations to protect service against natural disasters and human errors that could take the system offline.

  • More robust features: you get access to the vendor's latest features as soon as they're rolled out, without needing to install updates.

  • Mobility: your team members can use their business phone numbers to make and receive calls from anywhere.

Hosted PBX cons:

  • Reliable internet connection required: as with any cloud-hosted solution, the service is only as good as your network bandwidth.

  • User training: your team is familiar with  desk phones but might need some guidance to learn how to use hosted PBX.

There's much to consider when choosing a PBX phone system, but those aren't your only options.

Benefits of PBX Phone Systems

Now that we’ve seen the different types of PBX phone systems, we can dive into the benefits they offer to small and medium businesses with a focus on those that are especially boosted by hosted PBX solutions. Here are the top five:

1. Smooth calling experience

Calls can be managed and routed internally without the person on the other line even noticing it.

2. Centralized control

A customer or prospect can call one single number which can then alert multiple different phones within your company.

3. Advanced automation and efficiency

With the auto-attendant feature, calls that previously needed to be handled by a receptionist can be routed automatically. 

4. Structured call organization

PBX systems provide many call-routing options and rules, allowing businesses to manage their calls in the smartest way possible.

5. Improved internal management

Some PBX systems allow users to set access rules where only certain phones are allowed to receive certain types of calls, ensuring that each call is routed to the best-suited agent or department.

How to Install a PBX Phone System?

Installing a PBX phone system can be complex. It requires choosing a smart location for the key service unit (KSU), plugging in circuit cards into your KSU, setting up the telephone network, connecting employees' phone units, and ensuring a reliable power source in each phone unit location. It is advisable to have someone with previous experience to oversee this process.

Beyond PBX: a Hosted PBX Phone System

The same cloud-computing innovations that make it possible to use hosted PBX can also bypass PBX altogether and instead use VoIP service or a unified communications platform.

Like hosted PBX, modern VoIP systems are cloud-based and hosted by an outside provider and work like an application. Unlike hosted PBX, you don't have a private network with complete control, but you do have privacy with a good VoIP vendor. And because you're sharing the network with other organizations, you're also sharing the costs.

With VoIP, your company doesn't need to invest in expensive hardware and may not need to buy software licenses for each user. You can easily add or remove users, and you only pay for what you use, making it easy to scale. And because VoIP is cloud-based, employees can work from anywhere using any internet-connected device.

VoIP offers the most advanced features of any business phone system, and you can integrate multiple communication channels. Or, you can buy them bundled with VoIP as part of a unified communications as a service (UCaaS) package.

VoIP can also be integrated with other key business applications, such as CRMs, file-sharing solutions, and other productivity apps. For instance, by integrating VoIP with your CRM, your salespeople can automatically log incoming and outgoing calls into the CRM and view customer data for incoming callers. You can also automate customer service workflows when integrating VoIP with your ticketing system.

In a nutshell, modern VoIP could save you precious time and money. It also lets you future-proof your business withpredictive analytics, artificial intelligence-enhanced features such as voice recognition and chatbots, and other new and emerging communication features.

Is a PBX Phone System Right for Your Business?

Which phone system is best? That depends on your business. While most companies are migrating communications to the cloud, both VoIP and hosted PBX solutions are in high demand.

As of 2021, 31% of businesses used a VoIP solution, and telecom experts predict that market to grow from $85.2 billion in 2021 to $102.5 billion by 2026. 

Both systems have their benefits and drawbacks, which make them better suited for certain businesses. The best option for your organization depends on:

  • Your internet access

  • How much you plan to grow your business

  • How often your employees work remotely

  • Your current setup

  • What features you need to support your team across departments

If you still need more information to decide which business phone system is the best fit for your company, contact an Aircall representative, they’ll offer personalized guidance to help you find the perfect solution for your needs.for more information.

Published on October 14, 2016.

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