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Hosted (Cloud) vs On-Premise PABX

The Big Debate

This has been a hot topic over the last couple of years and I'd like to throw out the PRO'S and CON'S of each product so that you can make an informed judgement, and decide which will suit your business. There are many providers out there with lots of different cost plans, options and features so we'll try to keep this as generic as possible. For many small businesses, hosted (also called Hosted PBX or Virtual PBX) or managed VoIP services can be a cost effective way to access advanced telephony and UC features but also have feature limitations and restrictions. An On-Premise PBX has been the standard for many years but with the higher intial cost and ongoing maintenance, complexity and expansion costs, hosted solutions might be the answer...

Here is the information you need to make an informed decision regarding a communications solution and which will suit your business now and into the future.


Hosted (Cloud) PBX - The New IP Centrex

cloud telephonyI mentioned at the beginning, there are quite literally 100's of different hosted VoIP providers so I'm not going to mention any of them specifically, I am simply going to summarize key points that are common across most of them (there will be exceptions of course). The telephony features offered per carrier can vary significantly however we are going with the basics of call-in, call-out, transfer, hold and conference. Additional features such as Auto-Attendant, ACD/UCD, Smarphone apps, call routing and CLI may be extra. Some features such as external paging, scheduling, tenanting, hot-desking etc. may not be available.

Hosted PRO'S

  • All Telecom equipment resides at the providers data-centre, no PBX switching equipment installed on-site other than IP sets and supporting infrastructure.
  • The hosted PBX service provider can resolve service problems remotely without attending site.
  • Hosted PBX service providers offer support as needed, you don’t need staff to support your PBX.
  • Hosted services manage redundancy and backup for your telephony configuration.
  • Purchase and lease phones only as needed. Your system can grow with your future needs, just add phones.
  • System updates and enhancements are taken care of automatically by the service provider. 
  • Local and Long Distance calls are generally provided as part of the contract.
  • Telephony is now a fixed cost per-month and considered an OPEX.
  • Telephones can be deployed anywhere across the country / globe to support remote workers.

Hosted CON'S

  • Connections and voice quality are a result of your Internet connection.
  • Loss of Internet service results in loss of phone service (settings can be adjusted so that it goes to voice mail or routed to a cellphone).
  • Flexibility of system features and functions are very limited compared to on-premise.
  • Customization of features may be slow or unavailable (depending on provider).
  • Addtional features and functionality (UC, Smartphone app, ACD/UCD) can come at significant costs over and above basic service.
  • Turn around time for service requests vary by provider, check your SLA (Service Level Agreement).
  • No choice in telecom carrier for lower long-distance rates/fees.
  • Fees can be increased and cancellation fees can be charged.
  • You generally never own the equipment, unless part of contract.
  • Fixed-Term contracts are generally required from 2-3 years minimum.
  • Overall cost can be expensive compared to initial cost of On-Premise PBX.


On-Premise PBX - IP or TDM Decision

traditional telephonyThe traditional key telephone system or IP telephone system has been around for a long time, they're under constant development and improvment but require a trained and skilled installer to set them up correctly, as well as the underlying infrastructure within your business to support them. Most TDM (Digital phones) systems support the old CAT3 cabling and will work perfectly well with no limitations. To install an IP-PBX you will need to have certain data network features such as POE (Power Over Ethernet) and QOS (Quality of Service) and at least a CAT5e cabling infrastructure.

Most modern IP-PBX's support both Analog, TDM and IP functionality, as well as the ability to connect Smartphone apps, remote workers and SIP trunking.

On-Premise PRO'S

  • Internal calls not dependant on Internet connectivity.
  • System functionality and flexibility far more customizable to meet business needs.
  • UCD / ACD (Call Centre) functionality built-in to system.
  • System enhancements and changes have faster development and implementation time.
  • Support of Analog and Digital phones which can be significantly cheaper.
  • You own the equipment, it's not a rental.
  • Any choice of Telecom carrier or service type (POTS / ISDN / SIP).
  • IP Telephones can work locally (LAN) or remotely (WAN) with litte or no cost.
  • IP-PBX's systems expand capacity via license with minimal hardware upgrades.
  • Customer can manage their own moves, adds and changes and backups.
  • Free to chose any qualified installer and maintainer.

 On-Premise CON'S

  • Initial cost of installation and configuration can be expensive.
  • Data infrastructure may need replacing or upgrading if installing an IP-PBX.
  • Your new telephony and UC system is a CAPEX.
  • Staff will require training on administration for moves, adds and changes.
  • Some systems require annual licensing and re-licensing for support and features.
  • Your installer may require a maintenance contract for ongoing service work.
  • Expansion may require new hardware and possible license costs.
  • You may require a dedicated staff member to manage telephony depending on the size of your business.


As you can see, there are distinct pro's and con's to each side of this discussion. There is no clear easy answer, and ultimatley the final decision comes down to you, the customer and what suits your business model. We did a basic cost analysis comparing a hosted solution vs an on-premise system and were somewhat surpised with the results.

These figures are based on a leading Canadian Telecommunications provider and their hosted voice product, all prices are in $CAD. We based this cost example on a 12 handset solution. Features provided by the VoIP provider per handset, are as follows:

  • One Main local number
  • Auto-attendant
  • Single number reach (contactable on up to 4 devices)
  • Call handling & forwarding
  • Unlimited VOIP calls to US and Canada

Hosted System with IP Telephones:

  • Cost per USER service access - $25 a month
  • Cost per HANDSET - $275 ea (Based on a Yealink T46S)
  • Term is based on 3 year commitment period
  • $3,300 in Telephone Sets (one-off cost)
  • $300 per month in service access
  • $6900 in first year for service access and telephone sets ($200 more than your own on-premise IP system *).
  • $14,100 over the 3 year term for 12 handsets and service (you've now paid nearly 2x the amount of the on-premise system).

On-Premise IP system with IP Telephones:

  • On-Premise IP Telephone System supporting 30 IP Terminals, 4 PSTN trunks and 4 VoIP channels (expandable) with multi-level autoattendant, voicemail, voicemail-to-email, UC smartphone app, SIP trunk capable, ACD/UCD included - $2100 MSRP
  • 12 Executive Gigabit IP Telephone Sets - $4000 MRSP
  • Installation on existing data infrastructure and cabling - $600 (This is based on $50 per handset, costs depending on installer)

The initial costs are slightly lower than the Hosted Cloud solution and is almost entirely offset within the first year of ownership. The flexibility and expansion capability provided by an on-premise system, as well as the ability to leverage SIP trunks, remote workers and smartphone UC applications may be the deciding factor for you and your business.

 Thought provoking isn't it ...


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