Hosted or On-Premise Phone Systems – Which Is Right for Your Business?

Communication is the lifeblood of every modern business, and when it comes to phone systems, there's no shortage of options available. However, deciding on the best phone system isn't always straightforward. Before you choose your exact system, you should first determine whether you would most benefit from an on-premise or a hosted phone system. That's what we're diving into today.

Hosted Vs. On-Premise - What's the Difference?

An on-premise phone system (sometimes referred to as a PBX) is precisely what it sounds like - all VoIP hardware, including servers and other connected technology, is located on-site. Essentially, the system is owned or leased by the business itself. As a result, companies with on-premise systems are wholly responsible for the upkeep, maintenance, and expansion of all the network infrastructure. The company might rely on its IT professionals for this task or partner with a provider to manage the upkeep.

By contrast, a hosted phone system, also called a virtual phone system, is cloud-based and works through an internet connection. Typically, the only hardware present on-site will be the physical devices (phones) and a network switch. The phones connect to an external third-party data center where all the servers and relevant data are located.

So, that's the difference, but which one is the best? To answer this question, we need to look at the pros and cons of both.

Pros of a Hosted Phone System

Here are some key advantages of a cloud-based system over a conventional on-premise system.


Hosted phone systems are considerably cheaper than their traditional peers for several reasons. Namely, since the system infrastructure isn't located on-site, the up-front setup cost is minimal. You can use equipment you already have, including softphones, desk phones, mobile devices, and VoIP handsets. Equally important, maintenance costs are often much lower, and you don't need in-house IT staff to maintain the system.

In comparison, on-premise systems require a lengthy and expensive initial setup and potentially costly ongoing maintenance.


Your phone system must be able to expand as your business grows. Hosted phone systems have an advantage here for one crucial reason. Providers have all the necessary technology to scale your service quickly and effectively with little input from you.

It's a Streamlined Platform

Hosted phone systems are streamlined and unified communication platforms that allow both internal and external communication from one easy-to-use interface. This means various teams within the business don't need to battle with separate software and can instead align their strategies around the platform. Typically, these systems also come with compelling additional features like instant messaging, video conferencing, voice-to-email, and integration with CRM platforms.

Resilience to Cyber Attacks

Data breaches are alarmingly common and increasingly severe. However, hosted phone system providers typically have strong cybersecurity protocols and identity management tools, leverage robust encryption, and follow information security best practices.

Better For Remote Teams

In a world where remote working is the new norm, hosted phone systems provide more flexibility. Providers offer software for remote teams to handle calls from any device.

Cons of a Hosted Phone System

No technology is without its drawbacks. Here are some disadvantages you need to consider when determining the best approach for your business.

  • Limited control and customization. Ultimately, your service provider has the final say over the system, so you may not be able to achieve everything you want.
  • If something goes wrong, you must rely on your provider to fix the issue quickly to prevent lengthy and costly downtime.
  • A poor internet connection can result in poor call quality.

Pros of On-Premise Phone Systems


The top benefit of going (or sticking with) on-premise is complete control and customization. You control every aspect of the system, and your in-house staff has comprehensive knowledge of the nuances of your network. This means you can design the system from the ground up to meet your exact needs and eliminate the risks of working with a third-party, namely, vendor lock-in and trusting an eternal entity with your sensitive data.

Long-Term Costs and No Service Fees

While hosted systems are typically cheaper, this isn't always the case. For example, if you have a very large business, you might see better ROI with an on-premise system where you have more control over the long-term costs, despite the hefty initial setup. Similarly, a hosted system might be cheaper to begin with, but you can't guarantee your provider won't increase their fees in the future.

Beneficial for Companies with Unreliable or Inconsistent Internet Connectivity

If solid internet connectivity is a concern, you might benefit from an on-premise solution. This option can ensure your phone calls are kept on phone lines and separate from your internet traffic, which you may need for other critical operations.

Cons of On-Premise Phone Systems

  • If you have geographically dispersed offices or remote employees, you can't use the same physical on-premise system unless you plan to lay miles of wires across mountains and rivers.
  • Total responsibility for maintenance and repair. The flip side of complete control and customization is you are on your own for maintenance and repair. Your IT staff needs to mobilize quickly if there's an outage.
  • Higher total ownership costs. Typically, on-premise systems have higher total ownership costs. Put simply, while higher upfront costs can sometimes provide long-term cost savings, this is by no means a guarantee. Unanticipated events and variable maintenance costs can diminish ongoing cost savings. Moreover, the whole system may need to be replaced when it reaches end-of-life - typically after five to ten years.

Hosted Vs. On-Premise - What's the Verdict?

Both on-premise and hosted phone systems can be effective and reliable for businesses of all sizes. However, weighing everything up, there's a clear winner. For the vast majority of companies, hosted phone systems are the way to go. Any drawbacks these systems have are outweighed by their increased flexibility, scalability, security, and ease of use.

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