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Streamlined business communications are critical in today’s age of digital transformation. Whether you’re seeking a communications solution to connect internal or external parties, you’ll need to ensure you’re making the best investment for your business.

When searching for the best telephony solution to keep your team and customers connected, you’re guaranteed to come across the term “PBX phone system.” The world of telecommunications is awash with acronyms and complex jargon, and understanding what a PBX phone system is and how it works can be challenging.

Here, we’ll explain what PBX phone systems are, how they’ve evolved, and the business benefits they provide.

What is Private Branch Exchange (PBX)?

Private Branch Exchange (PBX, for short) is a private telephone network that connects users inside a private network, allowing them to talk to each other.

A PBX connects to the Public Switched Telephone Network (PSTN) and operates a business’s internal telephone network, allowing users to communicate internally and externally using communication channels such as VoIP (Voice over Internet Protocol), ISDN, or analog phone lines.

PBX vs PABX: What’s the difference?

PABX stands for Private Automatic Branch Exchange. In the past, PBX systems required a human switchboard operator to function. However, modern PBX phone systems are almost always fully automated. So, although you might still see PBX written as PABX sometimes, the “A” is somewhat redundant.

So, what is a PBX phone system?

A PBX phone system is a business telephone system that provides organizations with enterprise-grade telephony and advanced features. A PBX phone system allows a business’s phones to connect a greater number of telephone lines in a single network, rather than requiring a separate line for each phone like a key telephone system.

How does a PBX phone system work?

How a PBX phone system works depends on the type of PBX system in question. 

Before the dawn of the digital age with its accompanying digital systems, analog traditional PBX systems relied on landline copper-wire telephone lines which entered into the business’s physical premises to connect to the PBX box (typically housed in an IT closet). The PBX box housed telephony switches to enable phone calls to be “switched” or directed to different desk phones within the office. 

Nowadays, things have changed. Modern PBX systems work using the internet. This type of system—known as an IP PBX, digital BPX, VoIP PBX, or VoIP phone system—uses digital phone signals to make and receive phone calls. 

Digital PBX systems function using ethernet cables to facilitate connections between VoIP phones, so there’s no rewiring necessary. IP Private Branch Exchanges provide improved connectivity as they function using an internet connection.

Regardless of the type of technology used, PBX phone systems perform certain key call processing functions:

  1. The PBX establishes a connection between telephony devices. 
  2. It transmits voice signals between users for the duration of the call. 
  3. It terminates the connection when one of the users ends the call.

Additionally, PBX phone systems offer a range of business-grade features to enhance the call routing and handling process. Some advanced calling features of PBX solutions include:

  • Auto-attendant - Provides callers with a pre-recorded menu to help route callers to different departments or employees within the organization.
  • Business hours routing - Automatically transfers out-of-hours calls to a 24/7 customer support line, different departments, or available agents. 
  • Call blocking - Mask your caller ID for enhanced privacy.
  • Call forwarding - Allows employees to transfer calls to the right department or agent. 
  • Call queue - Informs customers about their place in the queue and how long until they reach an agent. 
  • Call recording and logging - Call records to store important calls for training purposes or archives. 
  • Conference calling - This PBX feature is essential for business telephone systems to establish conference calls internally and externally. 
  • Extension dialing - Each employee is assigned a unique extension number, so incoming calls reach the right person every time.
  • Music on hold - Keeps callers entertained as they wait in line with music of your choice.

IP PBX unifies communication channels with advanced features like CRM (customer relationship management) integrations, voicemail-to-email, messaging, and video conferencing.

Types of PBX telephone systems

Traditional analog PBX

Traditional PBX systems are based on-site at a company’s central office, where the telephony service is needed. These Analog PBX systems were designed using circuit switching systems to connect the business phone system with the public switched telephone network using plain old telephone service (POTS) copper phone lines.

IP PBX system

An IP PBX system relies on internet connectivity to transmit voice data signals using Voice over IP. IP telephony uses packet switching technology (as opposed to circuit switching) for inbound and outbound call processing. 

IP PBX telephone systems are privately hosted on-site. They connect to the PSTN using Primary Rate Interface (PRI) or SIP trunking to establish voice data transfers between IP phones using the internet. 

IP PBX systems have the functionality to deliver high-definition audio calls to inside and outside lines with almost unlimited extensions and trunks. IP PBXs are cost-effective and can save on expenses associated with international calling while providing businesses with access to a range of advanced features. 

When choosing between traditional PBX or VoIP PBX, there’s no competition. VoIP business phone systems are the go-to choice for small-medium businesses seeking an affordable, scalable, and flexible telecommunications system.

Diagram showing how the internet connects an IP phone to other telephony devices

Hosted PBX

A hosted PBX system (also referred to as virtual PBX, hosted VoIP system, cloud-hosted PBX, or cloud phone system) delivers IP PBX operations while being hosted in data centers operated by a telephone company or cloud service provider. 

Hosted VoIP solutions enable organizations to retain control over their business phone system without having to host it on-site. Hosted PBXs are cost-effective, allowing businesses to outsource the management, maintenance, and upgrades. 

A cloud-based phone system provides the scalability and flexibility needed to facilitate modern business communications. Users can enjoy unlimited phone calling and a range of advanced features with the assurance that their business communications are backed and protected by robust enterprise-grade security solutions. 

Hosted PBX providers typically offer Software as a Service (SaaS) or unified communications solutions and provide a subscription model where users pay a set price each month.

On-premises PBX vs. Hosted PBX: Which is better for small business?

Traditional or IP PBX systems can be located on an organization’s premises or within off-site data centers belonging to cloud PBX providers. 

When upgrading your business’s telecommunications system, it’s crucial to weigh up the pros and cons of choosing an on-premise or hosted PBX solution. The type of PBX you choose will depend on your business’s specific needs, but you’ll also need to factor in your company’s budget, current infrastructure, resources, etc. 

Check out the major differences between on-premises and hosted PBXs in the table below:

On-premises PBX

  • Upfront costs associated with hardware, installation, and maintenance
  • Hardware-reliant
  • Requires regular maintenance and an on-site IT team
  • Difficult to scale, migrate, or upgrade

Hosted PBX

  • Low upfront costs; hosted PBX solutions require low initial equipment and setup costs
  • Doesn’t require site-specific hardware; calls can be carried out with various phone options (IP phone, softphone, mobile app)
  • Cloud phone system service provider manages updates and upgrades; cloud systems can be accessed from anywhere
  • Highly scalable and flexible; PBX service provider carries out upgrades

On-Premise PBX solutions are best suited to large organizations with the infrastructure, data networks, and resources available to manage and maintain them. On-premises PBX solutions give organizations complete control over their business communications, decreasing reliance on third-party providers for simple tasks like adding new extensions or users. 

Modern hosted IP PBX systems allow businesses to retain control over their telephony system while reducing the costs and constraints of hosting PBX equipment on-site. With hosted PBX, business owners have the freedom to choose their hosting and SIP trunking providers, allowing them to tailor the solution to meet specific business requirements. This makes hosted PBXs key systems for small businesses with lower budgets and evolving needs.

IT manager talking to the CEO about the benefits of hosted PBX for their business

Hosted PBX benefits for business

Traditional phone systems no longer meet the dynamic needs of modern businesses growing increasingly reliant on multiple communication channels and a remote workforce.

1. Potential cost efficiency

A significant benefit for small businesses, cloud PBXs require minimal upfront costs. By taking expenses associated with on-site PBX equipment, installation, and maintenance out of the equation, a hosted business phone solution is a cost-effective alternative to an on-premise system. And with all the benefits it offers, hosted PBX can potentially save your company more in the long run.

2. Scalability

Not restricted by physical locations or phone lines, hosted PBX solutions empower businesses to scale their communications needs up or down easily and affordably. 

With RingCentral MVP, you can add new users, features, and office locations in seconds. Just open up RingCentral MVP on your chosen device, log in, and manage your business communications from the intuitive RingCentral interface.

3. Flexibility and mobility

Hosted PBX solutions empower employees with the freedom to work from anywhere. No longer tied to the office, users can log in from their laptop or mobile device anytime, anywhere. With RingCentral MVP, your team can switch seamlessly between devices, so they can enjoy ultimate freedom and flexibility.

4. Improved team efficiency and productivity  

A cloud PBX solution like RingCentral MVP provides employees with the tools they need to communicate and collaborate efficiently and effectively. In addition to working from anywhere, teams can enjoy communication-enhancing tools like video conferencing, screen sharing, team messaging, and business SMS. 

With RingCentral, users can send text messages, collaborate, and share important files and documents all within the cloud. Moreover, integrations with other business apps ensure your team is always connected, informed, and armed with the tools they need to succeed.

Video: Cloud PBX - Business Phone Systems: RingCentral

Improve business communications with a hosted PBX solution like RingCentral MVP

A robust telecommunications infrastructure is an essential component of modern business success. Cloud PBX systems provide businesses with the flexibility and scalability they need to succeed in today’s digitally transforming world. 

A unified communications solution like RingCentral MVP empowers businesses with an integrated platform for agile business communications. Access a range of advanced features and communications channels to keep your team connected, informed, and engaged—wherever, whenever.

Find out how RingCentral MVP can streamline your business communications with a free trial.
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SMB Holiday Promotion:

*Void where prohibited or restricted. Offer valid until December 31, 2021. Discounts based upon list price published prior to Offer start date. Free Month(s) Conditions subject to the quantity of years purchased under qualifying RingCentral MVP plans purchased, and between 2 and 399 digital lines required. Additional Terms and Conditions apply.