What is Hosted PBX and How Does It Work?

a complete guide to hosted pbx

Table of contents

For decades, businesses relied on traditional PBX (Private Branch Exchange) systems for communication. However, as businesses grew and technology advanced, the limitations of traditional PBX systems became apparent. They required lots of physical wires and equipment. Moreover, it was expensive and hard to change or move from one location to the other.


The need for a more cost-efficient and adaptable phone system led to the evolution of the Hosted PBX system. It replaced traditional phone systems requiring bulky hardware and offers a virtual communication solution for businesses.

What is Hosted PBX?

Hosted PBX is a Private Branch Exchange phone system that operates over the Internet. It’s a virtual PBX phone system completely hosted in the cloud and not tied to any physical location. It allows you to make phone calls online instead of using wired cables. Your telecommunication service provider handles and maintains all the technologies that power your hosted PBX system. 

How Does a Hosted PBX System Work?

A Hosted PBX system involves a few key components: a VoIP (Voice over Internet Protocol), stable internet, and a service provider.


Firstly, the system starts with a connection to your Hosted PBX provider.  When you set up this particular phone system, you’ll also install the VoIP devices designed to handle voice data over the internet.


As you make a call using a VoIP-enabled device, it immediately converts your voice into digital packets. Once the voice is converted into these digital packets, your phone system routes the call to your service provider’s server. Here, it transforms the digital packet back to the original audio format. Once converted, the call is sent to the intended recipient. Though this process seems intricate, it happens swiftly and seamlessly to provide a smooth calling experience.

The Differences Between Hosted PBX and Traditional PBX

While both traditional and hosted PBX solutions serve the fundamental purpose of managing calls, the way they operate and offer functionalities differ significantly. Here we explore how they differ from each other:


Hosted PBX

Traditional PBX

Installation and Maintenance

Requires minimal installation; the service provider handles the maintenance and upgrades.

Requires physical hardware installation; maintenance and upgrades are managed in-house.

Cost Structure

Generally lower upfront costs; operating expenses can be predictable with subscription models.

Higher initial investment forequipment and installation ; ongoing maintenance costs.

Scalability and Flexibility

Highly scalable; adding lines or features is often as simple as updating a software setting.

Limited scalability. It requires adding physical equipment for expansion.

Location Independence

Supports remote and mobile working; employees can connect anywhere with internet access.

Primarily office-based; limited remote capabilities.

System Control and Customization

Managed remotely by the provider. Customization is available through user-friendly interfaces.

Full control in-house. Requires technical expertise for significant customizations.

Reliability and Continuity    

Relies on internet stability. Providers often offer redundancy and disaster recovery options.

Dependent on physical infrastructure. May require separate contingency plans for system failures.

Benefits of Hosted PBX

The hosted PBX phone system benefits your business by reducing phone setup costs and providing advanced communication functionalities. Here are some of the key benefits this particular phone system has to offer:

1. Low Setup Cost

Unlike traditional PBX systems, hosted PBX phone systems are completely internet-based. It significantly reduces your upfront costs. There's no need to purchase expensive equipment or pay for extensive installation services. You can also save significantly on your maintenance cost as your service provider hosts and maintains the entire system.

2. Increased Scalability

As your business grows and your communication needs change, the Hosted PBX can easily adapt. You can efficiently add new phone lines or features without making physical changes to the system. As such, you can ensure that your telecommunication functionalities match your current business size and operational scope.

3. Facilitate Remote Working

Your employees can access the phone system from anywhere with its internet-based setup. They can access and use its functionalities using various devices such as smartphones, laptops, or VoIP-enabled desk phones. It means your team members remain connected and productive regardless of their physical location.

4. Highly Reliable Connectivity

The hosted PBX system relies entirely on cloud-based infrastructure, so it’s not vulnerable to physical damage. This means that issues like local power outages or hardware failures have a minimal impact on the availability of communication systems. It ensures consistent communication channels for your business operations all the time. 

5. Increased Security

The PBX system helps protect sensitive business communications and safeguard data integrity. The hosted PBX service providers implement robust security measures to ensure optimum security. These can include encrypted voice data, secure data centers, and regular security updates.

Features of Hosted PBX

The key features of hosted PBX include Call Transfer, Call Conferencing, Real-Time Call Analytics, CRM Integration, and Call Hunting. These features aid in seamless communications and enhance the overall functionality of your business phone system.

1. Call Transfer

The Call Transfer feature in hosted PBX systems simplifies handling calls. It lets you quickly move a call to the right person or department. This means you can offer your customers and team members to spend minimum time waiting to talk to the right person.

2. Call Hunting

The hunting feature ensures your incoming calls are always answered, even in high-traffic scenarios. It directs a call through a list of phone numbers until someone picks up. This way, it reduces the chance of missing important calls.

3. Call Conferencing

Call Conferencing allows multiple people to join the same call. Your team members can efficiently meet and discuss, no matter where they are. Businesses with remote employees or multiple office locations mainly benefit from this feature.

4. Real-Time Call Analytics

Real-Time Call Analytics gives businesses important information about their calls. The hosted PBX allows you insights into your call pattern, like -  how many calls are made and how long they last. It offers valuable data for informed decision-making about managing calls.

5. CRM Integration

CRM Integration links your phone system with customer relationship management software. This means you can see customer information during calls. It helps provide improved and personalized customer service.

Limitation of Hosted PBX

Despite such impressive perks and features, it isn’t without drawbacks. The Hosted PBX’s primary limitations are the complete reliance on the internet connections and concerns about the system control.

1. Dependency on Internet Connectivity

A hosted PBX system relies entirely on an internet connection, which can sometimes be problematic. When your internet service is down or unstable, it can affect your business phone system capability. It often leads to poor call quality and even dropped calls.

2. Limited Control Over System Updates

As the service provider manages the entire system, you have limited control over the updates and upgrades. You must wait for the upgrade when you require the new functionalities. Also, the upgrade might not always align with your business’s preferences. Moreover, some hosted PBX providers might also charge extra for the new features.


Hosted PBX has emerged as a significant advancement in business communications. It streamlines the complex wired telecommunication systems into an efficient, cloud-based phone system. It adds more features and functionalities to your business phone system. Calilio offers cost-effective calling features and improved voice quality that the traditional PBX system lacks.

Frequently Asked Questions

What PBX means?

PBX stands for Private Branch Exchange. It’s a private telephone network used within a company or organization to manage calls internally and externally.

What is a hosted PBX seat?

A hosted PBX seat refers to a single user’s license or account within a hosted PBX system. Each seat typically includes access to the system's features like voicemail, call forwarding, and more.

What does a PBX system do?

A PBX system manages call routing and switching within an organization and between the organization and external phone networks. It helps handle multiple lines and facilitate call transfers, conferencing, and other telephony functions.

What is the difference between hosted PBX and traditional PBX?

Hosted PBX is a cloud-based system managed off-site by a service provider, requiring minimal physical hardware. Traditional PBX is an on-site system that requires physical installation and maintenance of equipment.

What is the difference between on-premise and hosted PBX?

On-premise PBX systems are located and maintained at the business’s physical location, requiring more hardware and management. Hosted PBX systems are cloud-based, and maintained off-site by a provider, offering greater flexibility and reduced maintenance.

What is a cloud PBX phone system?

A cloud PBX phone system is a virtual telephony system that operates over the internet, hosted and maintained by a service provider. It offers advanced communication features without the need for traditional, physical phone line installations.

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