Hosted VoIP v’s on-premise IP-PBX

by | Jul 9, 2013 | 3CX Links:, DSL & Broadband, VoIP | 0 comments

Not only do you need to be aware of VoIP – but you need to be aware of the ways that VoIP systems can be provided for your business. You can either have your own system based at your office (on-premise), or you may have just the phones at your desks with everything else out in the Cloud (hosted VoIP). Sometimes the way your VoIP system is provided, can be to your advantage, and sometimes, to the vendor’s!

Head in the clouds, or feet on the ground – we can help you decide which is best for your business …

When comparing a hosted VoIP solution to an on-premise IP-PBX – some thought should be given to the basic differences between the two systems and the advantages of each. Adopting a VoIP business phone system – whether it be a hosted [virtual] solution, or an in-house IP-PBX – is an excellent choice regardless which type of system you go for – But – understanding their differences can be important in making the right decision and ultimately being satisfied that your new phone system is cost-effective and providing you with a full scope of business benefits.

With software based IP-PBX systems and appliances driving down costs for both hosted VoIP providers and many IP-PBX manufacturers, there are significant benefits for users, who get a modern business phone system with more features, at a lower cost, and with lower on-going operational expenses.

What is Hosted VoIP?:

An Internet Business Phone System (also known as a hosted PBX or hosted VoIP or virtual PBX) is a phone system where the service provider houses most of the call-routing equipment – and handles onward connections to PSTN & mobile – at a data centre, where they maintain most of the technology and resources that the phone system requires to operate.


The IP phones or desk-sets usually plug into a LAN/router at your office and almost all the signalling, calls and features are handled by the provider’s IP-Media server located far away from their customers. This is a ‘Cloud‘ application with Internet used to link the service provider’s routing equipment, to the phones at your office. The hosted VoIP provider usually charges a “per-seat” (i.e. per extension) monthly service rental, and may include a package of call-minutes and features, or a low per-minute calling cost in that fee.

What is an IP-PBX business phone system?:

An IP-PBX business phone system (e.g. our 3CX or Yeastar) is like a traditional PBX residing at an on-premise location (e.g. at your office building in the computer equipment room), but, its built from technology that uses network and TCP/IP routing. Signalling takes place between the VoIP phone & the IP-PBX server over your own LAN.

Calls may go in & out through traditional PSTN lines (via analogue or ISDN), or over the Internet (VoIP) using SIP trunking – or even a combination of both! The IP-PBX is purchased from, and usually installed by, a telecom’s equipment company who connects the system to carriers using gateway units or software. These carriers may already handle your calls (e.g. BT), or they may be relatively new ISTP’s (Internet Service Telephone Providers), with aggressive tariffs and service rentals.

Understanding the fundamental differences between hosted VoIP and an IP-PBX will help in understanding the benefits and limitations of each business phone system.

What are you buying?:

Purchasing an IP-PBX on-premise phone system usually consists of buying hardware including phones, a server incorporating VoIP software (e.g. 3CX or Yeastar S-Series), network switching, and perhaps interface gateways needed to connect to your chosen analogue, ISDN or GSM telephony service providers. However, it is sometimes a mistake to think that all you need are the phones for hosted VoIP. For good quality calls on both platforms, your LAN and Internet Router should be ‘VoIP aware’, and network switches should also have Quality of Service (QoS) and Power over Ethernet (PoE) to support use of phones and PC’s on the same LAN structure.

Comparing Hosted VoIP with on-premise IP-PBX:
A summary of the differences between the two approaches are:

Hosted VoIP:

  • Lower initial equipment cost and lower setup cost (but don’t forget your network components!)
  • Maintenance costs are included in monthly service rentals.
  • There’s potentially, a low monthly service provider’s cost for calls and features.
  • High on-going cost per extension – especially when large hosted systems are compared to equivalent IP-PBX systems.
  • Lines & DDI numbers may be added upon request.
  • New features and upgraded software are part of the service.

On-premise IP-PBX:

  • Higher initial equipment cost and higher setup cost due to the need for a server & software.
  • Higher long term maintenance costs (w.r.t. the lifetime of the VoIP Server).
  • Much lower on-going monthly service costs after system is paid for.
  • Flexibility due to the capability to add, remove & support analogue, ISDN, GSM and SIP Trunk channels, from multiple carriers.
  • It’s easy to add SIP Trunk lines and DDI numbers.
  • Ability to SIP trunk with [different] VoIP providers to get low cost calls.
  • New features and upgraded software as part of service (with current UI in the case of 3CX).

Initial outlays can be identical for IP phones on both systems e.g. twelve Yealink T41P VoIP phones could be used either for an in-house IP-PBX system or for a hosted VoIP solution, but other equipment such as the VoIP server with PBX software and/or routers can be specific for the service. VoIP aware network switches with Power over Ethernet [PoE] are also [highly!] recommended for both system types, as phones need power, and VoIP needs priority over other data on your LAN. On-going maintenance of the server with hosted VoIP will rest with the provider (but is recovered in extension rentals). However – if purchasing an IP-PBX for an on-premises solution, there is Capex, support, and eventual replacement cost of the server to consider.

Costs of moves and changes:

Adding phones (users) to an IP-PBX can be as simple as installing another IP phone, unless additional licensing is required to expand call capacity (in the case of 3CX), but with hosted VoIP you will need to add both the cost of the hardware (IP phone) and add to your service plan, which will increase your monthly costs depending on the hosted VoIP provider’s per-seat service rental. Both can be easy to do. A 3CX IP-PBX has an administrator’s GUI interface where you can create more extensions quickly and easily at no cost – apart from the phone hardware of course.

It is notable that in the hosted VoIP model, every seat increases your service rental costs! However, the addition of an extension to an IP-PBX does not necessarily need another line! This means that on an IP-PBX platform, monthly service costs are not usually affected by the addition of an extension, because usually, the number of extensions far exceeds the number of lines needed by the business. Putting a phone in your reception area can be an expensive addition to a Hosted VoIP plan attracting an ongoing monthly fee, while it’s just a one-off cost on an IP-PBX.

It is also notable, that the hosted VoIP model will show lowest cost of ownership only when compared to an IP-PBX running gateways to ‘traditional’ analogue and ISDN lines. In this configuration, the IP-PBX needs additional hardware & configuration which further boosts the install costs for the IP-PBX system. If the IP-PBX is terminating SIP Trunks via a DSL service, then its on-going service rental costs will typically be much lower than for hosted VoIP! Keep this in mind when comparing proposals – as a hosted VoIP bid may be made to look attractive, simply because it’s being compared with a ‘hybrid’ IP-PBX running expensive legacy analogue or ISDN trunk lines. Remember that you need the same good quality DSL service for either hosted VoIP extensions, or for SIP Trunks into an IP-PBX, so if you can’t get good DSL, you probably shouldn’t consider VoIP outside your own LAN anyway!

Let’s look at other important considerations:

With any system, whether it be a hosted VoIP service or an on-premise IP-PBX the feature set is critical for your business. If it won’t do what you need it to do, then look at another system. Given that, there are other important considerations. Here are some general pros and cons:

Hosted VoIP Positives:

  • Lower initial cost and a Finance model based on a [it’s usually monthly] service rental.
  • A provider has many more resources than a customer. So new feature sets are possible. (Although, these might come only for an additional charge or rental, and only if other subscribers want them as well).
  • Implementation of new features will be handled off-site, entirely by the provider (but not without risk of service disruption!).
  • Its quick and easy to add or drop virtual DDI numbers.
  • It’s easy to move your phone system. Plug in the IP phone to a broadband connection and you’re back to internal dialling, & making and receiving external calls.
  • Deploying a new phone for a user needs minimal configuration, with the phone either being automatically provisioned by the Hosted VoIP server when it is plugged in – or sent to you pre-configured.
  • Hosted providers usually have edge border controllers or other NAT software that can better navigate through routers allowing easier implementation of remote users.
  • A loss of Internet or another catastrophic event at a business premise will have almost no effect on the business operations as calls will still either go to voice-mail or to a cell phone. This is because the PBX equipment is sitting in a collocation facility with redundancy, back-up power sources and other special safeguards.

Hosted VoIP Negatives:

  • Long-term costs of the system are high due to 3 to 5 year contract periods and per extension service rentals.
  • Either way, you’ll need a degree of local management to determine call plans and in- and out-of-hours routing. Hosted systems require instructions to be passed off site to a maintenance team who are also supporting other subscribers and therefore change implementation may be delayed.
  • Connections (signalling) and voice quality are directly related to the quality of your Internet connection (but the Internet & ISP’s have got much better in the last two years).
  • The VoIP hosting companies may present the product as just a bunch of phones plugged into your existing LAN & router – however – you’ll need a voice-aware LAN & WAN connection for either hosted VoIP or on-premise IP-PBX.
  • Loss of Internet will result in loss of phone service – including internal calls between extensions (although calls will still go to voice mail or where ever else they are routed to, e.g. a cell phone.)
  • Flexibility and/or customization and new future features may be slow or non existent for some providers. Hosted VoIP providers are unlikely to change or adapt services for single users, although there are some hosted VoIP providers that will customize feature sets for a customer (at a price!).
  • It’s difficult or impossible to integrate the phones with your IT structure (e.g. dial out of databases), to take advantage of Computer Telephony Integration (CTI).
  • The hosting company imposes their preferred carrier[s] and therefore, you get a fixed call tariff plan & no Least Cost Routing choices, apart from any offered by the hosting company.
  • Generation of additional extensions to be used in call routing, may incur additional service rental charges – for a non-existent phone!
  • Contracts can be long-term and difficult to get out of (especially rolling contracts!) …
  • Fee increases can be charged and/or cancellations fees imposed.
  • Your provider’s stability, both operational and financial effects your business continuity.

IP-PBX Positives:

  • Either way, you’ll need a degree of local management to determine call plans and in- and out-of-hours routing. However – IP-PBX systems can allow somebody with minimal training & local expertise to make these changes on the fly and optimise them with minimal delays and with a full [local] understanding of your business needs.
  • Lower on-going service costs – covering; trunk channels, DDI numbers and out-bound calls. Note that significant reductions in service rentals can provide a rapid Return on Investment! On-Premise IP-PBX systems will typically show lower annual costs and RoI in the second year of operation!
  • The number of trunk channels required is usually much lower than the number of extensions, which is another reason why on-going monthly service rental costs for IP-PBX are much lower than for hosted VoIP.
  • Having a IP-PBX gives you complete control allowing you to adjust, create, delete users, extensions, turn feature sets on/off, and set your own music/message on hold.
  • Adding more extensions either for users or just for call routing, will not impact on monthly service rental charges.
  • It’s easy to move your phone system. Plug the VoIP Server into a broadband connection and you’re back to making and receiving calls.
  • Deploying a new phone for a user, requires minimum configuration, with the phone automatically provisioned by the IP-PBX server when it is plugged in.
  • Remote users may be connected back into the IP-PBX system via Internet, for internal and external calls.
  • An IP-PBX gives you flexibility to experiment with and optimise your call routing plans – and you can test & see the results immediately.
  • Possibility of adding new feature sets with minimal license maintenance fees as they are developed and added to the system by the manufacturers.
  • No need to change your current carrier[s].
  • Ease of integrating 3rd party CRM applications and Databases to dial from (e.g. dial from Outlook or ACT! Contacts).
  • Ability to add VoIP SIP trunks [from multiple carriers] for route-based savings on calling and reduced monthly service costs.
  • Fast & easy to add new SIP Trunk channels from existing or new providers, and adding DDI numbers into those groups (often taking less than 24 hours).
  • Ability to choose multiple SIP Trunk and PSTN line providers to get the best call rates for each call type / geographic area (huge flexibility in Least Cost Routing!).
  • Ability to use Analogue, ISDN and mobile GSM gateways for incoming & outgoing fall-back in the case of DSL (SIP Trunk) failure – and to reduce cost of GSM mobile calls.
  • IP-PBX’s (e.g. 3CX) make it easy to access call data records so you can query call data as required.
  • Ownership of the VoIP server reduces costs over a period of time after the system is paid for.

IP-PBX Negatives:

  • Higher initial costs, with the Finance model based on Capex or Commercial Lease, especially if analogue or ISDN lines are used.
  • If you have an IP-PBX, then you should have someone who can manage its users – at least to a day-to-day operational level.
  • Expansions can increase complexity (but may also increase flexibility!).
  • External calls made by remote users are routed into the IP-PBX and back out again, using twice the DSL bandwidth at your ‘primary’ site, to create the call path.
  • A loss or failure of a PBX will route calls coming into a business via fall-back strategies (e.g. analogue, ISDN or mobile), until replacement/repair of the IP-PBX.

Have a look at this article – for a check-list to help you choose the right system for your business.

Contact us at Foxhall Solutions – 01787 228 402 – to discuss which platform suits your business best. We offer a free of charge consultancy to provide our expertise to assist in making your choice … Foxhall Solutions – Putting the Comm’s in Commerce …