The Voice of Your Business

Considerations when purchasing a new telephone system for your business

When it’s time to shop for a new business phone system, there are two options to consider: traditional on-premise telephone system or a hosted off site Private Branch eXchange (PBX) phone system.

Benefits of on premise PBX:

A PBX is a telephone system switch (computer processor) owned by a company or organization to process calls internally and externally.

Optional endpoints

An on-premise based system is a hybrid of technology. It offers digital, Voice Over Internet Protocol (VoIP) and analog options for various endpoints (ie. telephones  or a paging system). It offers all of the same features and benefits as a hosted IP system and more. In fact, many businesses “host” their own PBX and connect all their satellite locations. Rather than pay a hosted provider, they do it themselves. It is a matter of who owns and services the equipment.

An on-premise PBX does not force a company to invest only in IP phones. They may choose digital phones locally at the office and IP phones for remote workers or satellite locations. With an on-premise PBX, there is easy integration for analog phones and paging systems. Incorporating these features at times poses a challenge to the hosted vendor because it requires additional equipment, typically from third-party vendors.

Total cost of ownership

Premise-based systems may be paid for upfront or through financing options and tax write-offs. The client owns the equipment. When you add a phone, you only pay the one-time cost of the phone. Hosted solutions charge a monthly fee for the use of the system, the number of phones connected and additional features. Additional users and features increase ongoing monthly charges. Every time you add a telephone, you have to buy the phone and pay an additional $25-$30 user fee for each new phone for the life of the system. The return on investment diminishes as the number of users increases.

No ongoing monthly payments

With a hosted system, you are paying for dial tone, equipment and service every month for as long as you use the hosted solution.

With an on-premise solution, you own the equipment. After the expiration of the warranty, you have the option to participate in a service contract or pay on a time and material basis for service issues. Why pay for something that you don’t have to? Many companies do not want to pay for services that may never be rendered or pay monthly fees for equipment that may never fail. You have no choice with a hosted system.

Reliability and functionally

Unlike a hosted system, on-premise systems are not purely dependant on the internet for call quality and functionality. A hosted solution requires quality high speed internet access. If the internet goes down, so does the entire phone system. You cannot make or receive calls internally to fellow employees or externally. Not so with an on-premise solution. There are many ways to maintain functionality of the system if the internet fails. Further, if an on-premise PBX has an issue it does not mean the entire system goes down. It could be limited to an isolated issue not affecting the entire system. Unlike most on-premise systems, hosted solutions need expensive routers and switches to ensure QOS and implement firewalls to prevent hackers.

Local vendor for support

When you purchase a PBX from a vendor, you typically have local representation and support from a local company. You work with the same technicians and trust their expertise. Hosted solutions are offered as a service. When you need assistance, you reach a call center without a dedicated representative who is familiar with your system. You are working with an out-of-state vendor who typically hosts your system in a rented data center on rented servers. The hosted vendor may have no control over the data center that hosts your system and is dependant on those vendors to provide support. You will also need to assure that your hosted provider offers a service level agreement so that the failure to perform causes them to feel your financial pain and aggravation.

No vendor lock-in: When you invest in an on-premise PBX, there is no vendor exclusivity. If you are unhappy with your vendor, you may find another vendor. With a hosted system, likely you must enter a multi-year contract. A hosted vendor holds your dial tone and PBX in the cloud. You must rely on that vendor to assist you with issues.  If you are not happy with the call quality or service that you are receiving, you want a way out of the contract.

Many systems today have the ability for immediate remote support via the internet so diagnostics and changes can be performed remotely by your telecom equipment vendor from their office.


For some companies, having complete control over their communications infrastructure is an important enough business factor that they will choose premises-based offerings. Many organizations believe they can offer better security independently.

Benefits of a hosted PBX:

A hosted PBX as the name implies that the telephone system is not on the customer’s premises and is actually controlled by an offsite telephone system provider. Hosted PBX systems are an attractive alternative for rapidly growing small businesses. Rather than installing costly infrastructure on-site, incoming calls are routed through the provider’s data center and then transmitted to the appropriate extension through VoIP technology.

Here are some of the benefits you can gain through hosted PBX.


Companies that have multiple locations can benefit greatly by a hosted PBX.  Hosted PBX solutions have a centralizing effect because they allow field personnel, remote workers and multiple site locations to participate in the business’ central communication system.

Reduced infrastructure

Hosted PBX transmits calls over the internet using VoIP applications. This eliminates the traditional PBX cabinet on-site. Instead, the bulk of the hardware requirements are handled at the provider’s data center.

VoIP features & integration

One of the advantages of a VoIP phone system is that it merges your phone and data resources. Voice communication can be integrated with computer technology through single keystroke calling, caller ID, CRM, system monitoring, voice archiving and other important features.


Since the hardware is located at the provider’s data center, you don’t have to worry about getting a technician to service your PBX infrastructure when it goes down. Similarly, upgrades are handled on a system-wide basis rather than site-by-site maintenance visits. This is also the same for many PBX systems as well


You don’t have to buy most of the initial infrastructure associated with a traditional PBX phone system. By avoiding the startup expense of a central PBX unit, most small businesses can afford to take advantage of PBX technology.

Time division multiplexing

Time division multiplexing (TDM) describes traditional phone services set up over a phone line. VoIP, which began in 2004, uses your Internet service to make and receive phone calls. Many features are shared by the two, and though VoIP technology is becoming more popular each may suit the different needs of companies and personal users.

Time Division Multiplexing signals have been the backbone of corporate phone networks. TDM, phone technology based on circuits switched by venerable PBXs, have provided valuable services for a long time.

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Rather than supporting two separate networks, VoIP riding on the data network allows one. If voice was just an application running on the network, costs could be reduced and bandwidth could be used more efficiently.

TDM-Why I should stay

  • Proven reliability—it is the benchmark that all other services are based on
  • Dedicated bandwidth
  • No network changes to ensure service delivery
  • No additional network equipment to buy

VOIP-Why I should change

The technology has stabilized and matured. VoIP may support services TDM doesn’t, such as popping up account information about customers on call agents’ computer screens based on the caller IDs. It also enables users to place calls by clicking on phone numbers within applications and can find out who is available to take a call transfer.

There are pros & cons to every option you choose. VoIP services are dependent upon high speed internet and quality internet service. Data packets are resent if there are latency or jitters on the internet service, but voice packets are not. If there is poor internet quality, you will experience poor audio conditions, calls and much frustration.

There is a third option to consider: hybrid technology that combines both TDM technology & VoIP services. In your common office environment, you can still have traditional feature set telephones at your desk instead of an IP phone. This is typically a more inexpensive option. You can still have IP phones but at remote locations.

Which solution is right for you?

Clearly there are tradeoffs when considering either a premise based solution or a hosted communications offering.  You need consider the total cost of ownership of each solution and how it plays into your business plans.  Which telephone service will meet your current needs and adjust to your future needs?

If you have any questions please reach out to the Meadowlands Chamber of Commerce’s Technical Committee.

Prepared by Jason Sawyer of Comtex Inc., John Ruiz of Safari Telecom and Robert Manfredonia of Windstream

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Meadowlands Technology Committee

Meadowlands Technology Committee

The Meadowlands Chamber Technology Committee consists of members with an interest or business expertise in technology. The committee mission is to act as a resource to members by sharing technology industry insight and by being available for questions, suggestions and concerns. The Tech Talk column in Meadowlands Magazine and the Tech Talk Video Series provide awareness on technology advances, solutions and tips.

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