Types of VoIP phone systems

VoIP phone systems come in three shapes, and they differ on one question: where the switching runs. Hosted means in a provider's data centre. On-premise means in a box in your building. Hybrid means your own box, fed by internet trunks instead of carrier lines. Everything else follows from that answer.

The switching is the part that decides where a call goes: which extension rings, what the menu says, what happens after four rings, who is allowed to dial internationally. In an old PBX it was a physical box on a wall. In a VoIP system it is software, and the only real question is whose computer runs it.

The protocol is not the difference. All three usually speak SIP, defined in RFC 3261, and they all rest on the same mechanics, set out in what VoIP is and how it works. A handset cannot tell you which shape it is plugged into. Vendors sometimes present hosted and on-premise as different technologies. They are the same technology in different places.

You subscribe. The provider runs the software, holds the numbers, applies the updates and owns the hardware failure. You get a screen where you change what happens to calls, and the change is live in a minute.

What you are buying is the absence of a dependency. Nobody has to know how the switch works, nobody has to be available when it does not, and there is no equipment ageing in a cupboard.

What you give up is control at the edges. If you need the phone system to do something the provider has not built, you cannot build it yourself. You are also committing to their availability, their pace of change and their decisions about what the product should be.

Also worth naming: with hosted, your call records and settings sit on infrastructure you do not run. That is a real question for some businesses and a non-question for most. Ask any provider where the data actually lives before you assume.

You buy the switch, it lives in your building, and it is your equipment. Modern versions are software on a server rather than a proprietary box, which makes them cheaper and more capable than the PBX generation they replaced.

The case for it is control and marginal cost. Adding the hundredth person to a system you already own is nearly free, where the hundredth seat on a hosted plan costs the same as the first. If you need behaviour nobody sells, you can build it. If you have a compliance requirement that pins where recordings sit, you can satisfy it precisely.

The cost is that everything is now yours. The purchase, the server, the updates, the security of it, and, most expensively, a person who understands it. That last one is the real bill. On-premise systems rarely fail because the software was bad. They fail because the one person who understood it left.

This is what most businesses with a working PBX actually do first, and it is often the right move.

The handsets, extensions, menus and habits stay exactly as they are. What changes is the supply into the switch: the bundle of carrier lines is replaced by SIP trunks delivered over your internet connection. Calling gets cheaper immediately, capacity stops being a physical constraint, and nobody has to be retrained.

Understand what it is, though. Hybrid captures the savings and postpones the decision. You still own the switch, you still need somebody who knows it, and you have added an internet dependency to a system that did not have one. It is a bridge, and bridges are for crossing.

Ask these of any quote, in this order.

1. Where does the switching run, and who applies its updates? This is the whole taxonomy in one question.
2. What is paid up front, and what is paid monthly? A capital purchase plus maintenance and a per-seat subscription are not comparable numbers. The true cost of a business phone system shows how to put both on the same footing over three years.
3. How long is the commitment, and what is owed if you leave early? Hardware bundled into a monthly price is a loan with a term.
4. Who changes the greeting on a Friday afternoon? If the answer is a ticket, that is the difference you will feel every week, far more than the price.
5. What happens when the internet drops? With hosted, calls go wherever you told them to go in advance. With on-premise, internal calls between extensions survive and external calls do not. Neither is a rescue.
6. Who holds the numbers, and how do they leave? Porting is what makes the choice reversible. A provider who is vague about it is telling you something.

Below a few dozen people, hosted, almost always. The fixed cost of owning a switch does not pay back at that scale, and the dependency it creates on one knowledgeable person is a worse risk to a ten person business than any monthly fee.

The exceptions are real but specific: an unusual requirement no product covers, a site where the internet is genuinely unreliable and internal calling has to survive, or an existing switch with years of value left in it, which is the hybrid case.

If you have a quote in front of you and cannot tell which of the three it is describing, send it over and we will tell you which questions it has not answered. For what the subscription form of this actually includes, what is VoIP phone service goes line by line, and the rest of VoIP basics covers the mechanics underneath all three.