What is a PBX?

PBX stands for Private Branch Exchange, which is a private phone system used in a company or organisation. The users of the PBX can use the system to communicate both internally and externally via VoIP, ISDN or analogue. Having a PBX lets you have more phones than physical lines and also allows free calls between users. Also, a PBX will usually give you additional features such as voicemail, call recording, call queuing amongst others.

What is an IP PBX?

An IP PBX is a telephone system that uses IP (internet protocol) to carry calls over computer networks rather than PSTN (the regular phone network) or ISDN. So handsets are plugged into your existing RJ45 network sockets, with calls being carried over your ethernet network. IP PBXs can be hosted in a variety of places, but the two primary options businesses today consider are on your site, or in the cloud.

What is a Cloud PBX?

A cloud PBX, also known as a hosted PBX, is a business phone system that runs over the internet. With a cloud phone system, you don't need to have PBX equipment at your offices, a VoIP provider does everything for you.

A cloud-hosted VoIP phone system provides all the functionality needed by a modern business such as voicemail, call forwarding, and of course, calling. Rather than setting up your server or system to run your phones, you'd use a VoIP provider such as T2K for your company's communications.

When your employees place a call or answer the phone, VoIP handsets convert the sound into data packets. But handsets aren't your only option, you can also use your computers, or smartphones to make calls, so long as they have an internet connection and a softphone installed. Once your voice is converted into packets, they travel over the internet to the hosted PBX provider's systems. At this point, the provider establishes a calling path between both parties and connects the call.

When data packets arrive at their destination, the VoIP system converts them back into sound, and all of this is done within a few milliseconds!

What is an on-premise PBX?

An on-premise PBX, also known as an IP phone system, is similar to a traditional phone system in that it resides on a business' site usually in a communications cupboard or phone box. Similarly to a hosted solution, you need IP handsets, mobile phones or computers to make calls but rather than the call management taking place in the cloud, it happens locally.

Once voice is converted into data packets, they are sent to the local PBX over the local area network (LAN) and once they arrive the PBX sends the packets using SIP trunks. SIP is just a type of internet protocol that enables a certain type of data to be sent between two parties, in this case, voice. The SIP trunks carry the data packets to a VoIP provider who then connects the calls with the recipient.

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ISDN switch off - signalling the end for legacy phone systems

In 2015, Openreach announced that from 2020 you will no longer be able to buy ISDN services and they are targeting a switch-off date for existing services of 2025. At the time that gave businesses a decade to make the transition over to VoIP phone systems, but companies now have less than five years to make the switch. With hundreds of thousands of businesses using ISDN 2 and ISDN 30, the clock is ticking and now is the time to switch to VoIP.

Choosing between a Cloud PBX and an On-premise PBX

The most significant difference between a cloud-based hosted VoIP PBX vs a local system is who owns and maintains the equipment. If you have an on-premise system then you will buy and own the equipment and you'll also be responsible for its maintenance. Conversely, with a cloud system, the VoIP provider owns the equipment and maintains it and you pay a simple subscription fee. Buying your own equipment usually entails significant investment and for most businesses is simply unaffordable and frankly today unnecessary,

If you buy a PBX solution for your office you'll need to think about things like disaster recovery and what happens should the power get cut to the building or worse there's a fire. With a hosted PBX your team can pick up their phones and plug them in anywhere with the internet and continue to work. As many businesses have seen during Covid, this flexibility is hugely beneficial. With an on-premise phone service, you will need to think about things like battery backups for your IP server and switches, along with ways of diverting calls should the building become uninhabitable.

Benefits of a Cloud PBX

  • Lower (often nil) initial hardware and set up costs.
  • Low monthly service cost.
  • Easy to add extra lines, perfect for scalability.
  • Upgrades, updates and patches all included by the provider.
  • New advanced features added regularly benefitting all customers.
  • Loss of internet or a disaster situation is easily averted as mobile phones/Wifi apps can be used.
  • Security is managed by the cloud service provider

Disadvantages of a cloud PBX

  • You don't own the system
  • The flexibility of the system can be limited in feature-rich call centre environments
  • Fees can be increased
  • You rely upon the stability of the provider to give you the service
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Benefits of an on-premise PBX

  • You have full control over the system
  • Open source features can be added without any license fees
  • VoIP trunks can be used to save money on calls
  • Server ownership reduces costs over the long term

Disadvantages of an on-premise PBX

  • Expensive to set up and maintain
  • Support and maintenance costs will often be additional expenses
  • Loss of power or Internet to the PBX will result in calls not being able to get through
  • Not as easy or quick to set up remote working


Even after reading this article, it's likely you'll have questions about which PBX is best for your business VoIP service, and that's exactly why we're here to help. With many years of experience helping businesses navigate the world of telecoms, we're able to provide you with personalised expert advice on the best solution for your company. We are the communications experts and while we often find that the hosted PBX route is the best way to go for most companies, we also install and maintain both traditional and IP based systems on our client's premises.