What is a PBX system? Choose the right one for your business.

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Successful modern businesses depend on communication to get work done. Whether it’s between employees or customers in a call center, telephony is an essential feature of any virtual or physical office. 

If you’ve found yourself looking for the best way to keep your team connected, you’ve probably stumbled upon the phrase Private Branch Exchange (PBX) once or twice.

PBX systems have evolved over the years into what they are today: modern business phone systems. Here, we’ll tell you everything you need to know about PBX systems, how different types of PBX work, and why your business needs one.

What is a Private Branch Exchange (PBX)?

PBX is an acronym for Private Branch Exchange, which refers to a private telephone network used by businesses to connect users internally (within the company) and externally (to the outside world). 

The PBX automates routing and switching tasks using automatic call distribution/ACD queues. It aims to route incoming calls among employees and extension devices. In other words, it’s a business phone system.

You might sometimes see PBX written PABX (Private Automatic Branch Exchange). Traditional PBX systems required a human to operate the switchboard, but most modern PBX phone systems are fully automated—which is why the ‘A’ in PABX is no longer necessary.

What is a PBX phone system?

A PBX phone system provides companies and organizations with enterprise functions and features to meet business communication requirements. 

PBX phone systems allow businesses to access more functionality than a key telephone system, which only allows for a limited number of telephone lines. This includes the ability to handle an unlimited number of inbound or outbound calls at the same time, along with online portal management, extension dialing, virtual presence, and a range of call management features, including:

  • Auto-attendant
  • Call routing
  • Call queueing 
  • Hold music capabilities

There are different types of PBX systems that use different communication channels to function. These channels include Voice over Internet Protocol (VoIP) and Integrated Services Digital Network (ISDN).

Supervisor on a video conference with partners and customers

How do PBX telephone systems work?

The equipment required for a PBX depends on the type of PBX system and its complexity. That means whether it’s a traditional phone system with copper phone lines; it combines a mixture of analog phone lines and digital lines; it uses Voice over IP technology; or if it’s a fully hosted cloud PBX system. Here’s an overview of the different types of PBX systems and how they work.

Types of PBX

1.  Traditional PBX phone system

Traditional PBX phone systems have been around for a while. They connect to the Public Switched Telephone Network (PSTN) using Plain Old Telephone Service (POTS), i.e., landline phone lines. 

A PBX box contains telephony switches that allow calls to be routed to telephones and fax machines in an office and a limited number of trunk lines. These PBX systems involve a range of physical hardware components and typically live on-site in an office’s IT closet.


IP PBX phone systems (also referred to as digital PBX, VoIP PBX, or VoIP phone systems) use digital signals to deliver phone calls over the internet, as opposed to analog landlines. With the proliferation of VoIP business phone services and unified communications platforms, IP PBX systems are the go-to digital system for most businesses. 

On-site IP PBX systems rely on an organization’s internal network, using an internet connection to deliver high-definition audio calls and a range of advanced calling features such as call queuing, call transfer, call forwarding, voicemail-to-email, and more. Moreover, they allow businesses to operate at more flexible business hours and enable integrations with other business apps like CRM platforms.

Where traditional PBX systems offer limited phone lines, IP business phone systems allow users to benefit from internet connectivity with virtually unlimited extensions and trunks. For this reason, IP PBX phone systems are a smart choice for small businesses seeking flexibility and scalability.  

Businesses with a regular PBX can leverage the VoIP benefits of IP PBX systems using Primary Rate Interfaces (PRIs) or SIP trunking services. These services work by creating a virtual link between the PBX and PSTN utilizing an internet connection.

  1. 3. Hosted PBX

Hosted PBX, also known as a cloud-based PBX system, is a virtual PBX system hosted and managed off-site by a VoIP phone service provider. 

Cloud PBX is hosted in secure data centers, so all businesses have to do is subscribe to the service instead of investing in the expensive PBX equipment required for an on-site PBX. As a cloud-based phone system, it gives companies all the functionality of a business phone system along with the enhanced flexibility, agility, and business continuity of a cloud phone. 

Cloud-hosted PBX solutions are typically offered on a variety of flexible plans to suit different business sizes. This allows small and medium-sized businesses to access enterprise-grade functionality without having to invest in expensive on-site systems.

  1. Key PBX features of a hosted solution include:

  • Advanced call routing
  • Audio and video conference calling
  • Auto-attendant
  • Call forwarding
  • Call recording
  • Call reporting and analytics
  • Click to call
  • Free local and toll-free phone numbers
  • Interactive Voice Response (IVR)
  • Mobile and desktop apps
  • Voicemail/voice messages to email
Remote employee trying to call their company’s IT support

Comparing on-premise and hosted PBX

On-premise IP business telephone systems are a great option if you have the infrastructure, budget, and resources to manage them. However, it’s important to note the upfront and ongoing costs of implementing and maintaining this kind of PBX. 

Hosted PBX systems offer a cost-effective alternative that provides businesses with the cloud infrastructure they need to facilitate a fully integrated business phone system.  

Traditional and IP PBX systems typically cover voice communications. However, businesses these days are seeking solutions that offer omnichannel functionality to adapt to shifting technology trends. Enter Unified Communications as a Service (UCaaS). 

UCaaS solutions like RingCentral MVP (formerly RingCentral Office) combine all the functionality and features of hosted PBX systems with advanced features like video conferencing, messaging, SMS, and much more in a fully integrated platform that unifies communications.

4 Key differences between on-premises PBX and hosted PBX

On-premises PBX

  • 1. Requires high upfront costs for hardware components and installation
  • 2. Expensive to maintain and requires the expertise of an in-house IT department
  • 3. High costs required to scale the PBX system
  • 4. IT department is responsible for ensuring software updates are taken care of

Hosted PBX

  • 1. Low on-site hardware or installation costs; All you need is an internet-enabled device to access the platform
  • 2. Few maintenance costs—servers and hardware are maintained by the service provider
  • 3. Easy to scale up or down; adding phone numbers or advanced features is simple
  • 4. Software updates are automatic and non-intrusive

Business benefits of hosted PBX phone systems

Companies of all shapes and sizes can enjoy the benefits of switching systems to hosted PBX, but the flexibility and affordability it offers make it the perfect scalable solution for small businesses.

1. Cost Savings

A hosted VoIP solution like RingCentral MVP allows you to manage your entire business phone system online, so you can easily add new extensions, modify features, and get in touch with IT support at a minimal cost. You’ll get unlimited international calling, video meetings, messaging, guaranteed uptime, and more for a single monthly payment.

2. Improved team communication

Team communication is a critical component of business success. With a Hosted PBX provider like RingCentral, you can boost team communications through:

  • Virtual extension dialing - Assign individual phone extensions to team members to make it simple to transfer calls between departments.
  • Team chat - Allow colleagues to chat with instant messaging to improve collaboration.
  • Video conferencing - Keep teams connected face-to-face no matter where they are in the world. 

3. Better customer service

With a hosted PBX, you can deliver better customer service with call center features that enable you to record calls, transfer calls, and route them to the right person every time. Integrate RingCentral MVP with your CRM and store all your critical customer data to deliver personalized customer experiences.

4. Enhanced scalability

Hosted PBX solutions like RingCentral MVP allow businesses to scale their communications seamlessly. Add new phone lines, numbers, office locations, and extensions in seconds using the MVP platform. RingCentral MVP scales with your business. Customers can also handle spikes in call volume since data centers can be added to accommodate increased calls. 

What’s more, businesses can enjoy the added flexibility of using the app on desktop or mobile—so teams can access the centralized platform and all its features whether they’re at home or in the office.

Welcome to the RingCentral app for Desktop: Message. Video. Phone. video

Enhance your business communications with hosted PBX

Today, effective business communication means more than being reachable by phone in the office. Cloud-hosted unified communications systems are becoming the go-to solution for businesses of all shapes and sizes. Companies must implement agile communications systems that provide enhanced flexibility, mobility, and scalability.

A solution like RingCentral MVP (formerly RingCentral Office) provides businesses with a single, integrated communication platform with a range of advanced call management features along with the ability to make video calls, message instantly, and access a host of collaboration features—All from an internet-connected device equipped with the RingCentral app.

Learn more about how RingCentral MVP can take your business communications to the next level and chat with a member of our sales team today.
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