What is a Cloud PBX?

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PBX stands for private branch exchange, which is a private telephone network that connects together all of the phones within a company. A PBX connects out to a public switched telephone network (PSTN) which allows you to make and receive calls.

The two most common types of PBX are:

  • On-Premise PBX (also known as Traditional PBX systems)
  • Cloud PBX (also known as Hosted PBX or Virtual PBX)

An On-Premise PBX is a business phone system that routes calls on-site of the company.

A Cloud PBX is a digital phone system that routes all lines through the cloud.

Types of PBX

There are many differences between on-premise and cloud PBXs in terms of how they work, the type of voice connection and network required, and maintenance.

An older, on-premise PBX typically:

  • Requires legacy voice connection methods like PRI or analog lines
  • Uses a separate physical network than computers do
  • Can be expensive to maintain or add phones as the business grows

A newer, on-premise IP-PBX typically:

  • Leverages the Internet connections that the business already has
  • Enables newer, more flexible voice connection methods like SIP Trunking
  • Allows the same physical network as computers do
  • Are relatively easy to maintain and add or remove phone lines

A Cloud PBX typically:

  • Uses the Internet connections that the business already has
  • Supports the same physical network as computers do
  • Are less expensive to maintain and expand as the business grows
  • Can take advantage of a failover solution

When considering which PBX above is right for your company, there are distinguishing factors to take into account.

Differences in PBX Functionality


Probably the biggest difference between on-premise PBX and Cloud PBX is the actual hardware involved (or not involved).

An on-premise PBX physically is housed on-location within the company, whereas a Cloud PBX is hosted in the digital environment of the cloud. This means that the on-premise PBX will end up taking space and electricity somewhere in your office (probably in your server closet), whereas a Cloud PBX system requires no additional storage.

Total Cost of Ownership

There are many different cost factors to consider for both systems. Depending on how you use your phone lines, the difference between PBX and Cloud PBX could be tremendous. Here are some considerations to keep in mind for these solutions:

  • Phone system hardware and parts
  • Maintenance contracts
  • Local Area Network upgrades
  • Voice connection
  • Resources to administer
  • Power consumption
  • OpEx vs CapEx (monthly vs. one-time cost)


If business is booming, then you’re going to want to be able to add phones quickly and effortlessly.

With an older, on-premise PBX, adding a new phone might be an extensive process. For example, if you’re adding a desk phone, you may have to modify wiring in the phone closet or add expensive PBX line cards.

With Cloud PBX, adding a phone is easy. It’s typically pre-configured — just connect it to the network and it’s up and running within a few minutes.


While both on-premise PBX and Cloud PBX can be seen as reliable, each have different methods of connectivity, which means different factors can affect your phones’ functionality.

For Cloud PBX, the connection and quality can be affected by your Internet connection. Network updates may be required to ensure proper operation of voice services and applications.

With an on-premise PBX, a power failure can cause you to completely lose your connection, causing calls to fail.

All in all, there are a lot of factors to acknowledge when considering your next phone system. While a Cloud PBX certainly makes sense for new businesses, maybe it’s not right for an organization that’s already invested heavily in their traditional PBX.

If you’ve got questions about this decision (and how different options can impact your business), Contact Us Today!

Lauren is a Content Writer and SEO Specialist for TelNet Worldwide. When she’s not diving into data centers or SIP Trunking, Lauren writes TV scripts and builds music playlists for fun.

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