For most businesses a telephone system means one or more pieces of equipment, housed at one of your business locations, that connects your business to the PSTN. Often, this equipment is a Private Branch Exchange (PBX) or a Key System.

The PBX provides several services. First, by connecting outside telephone lines or trunks, to the PBX it manages the flow of voice traffic to the PSTN to allow for incoming and outgoing calls. Second, the PBX provides a set of calling features like call transfer, conference calling, putting calls on hold, etc. Finally, the PBX may have a voice mail system associated with it.

IP PBX

In the VoIP world, many manufacturers now offer IP PBXs. They operate much like standard PBXs except that they carry voice traffic as packets using IP. While IP PBXs offer many of the advantages of VoIP (lower cost calls, more features, etc.) they have some disadvantages.

• Cost - Purchasing an IP PBX is a capital expense. The cost varies by size, capacity and
  manufacturer but it can easily run to tens of thousands of dollars even for a modest size
  business.
• Extra Equipment – The cost of the IP PBX is not likely to be the only up front cost you encounter. Normally you’ll end up buying new phones and other networking gear needed to take advantage of all that an IP PBX can offer and ensure call quality.
• Obsolescence – Like any other piece of equipment, an IP PBX can quickly become dated.
  The computer you purchased two years ago might seem slow but you can update it with more memory or a bigger disk. Of course it will cost money to do so and often require the intervention of a technical expert. The same is true for an IP PBX: it can be updated and upgraded, but it will cost money.
• Management Expenses – The technology in an IP PBX is sophisticated, operating and managing it requires a specialized skill set. Most SMBs don’t have that expertise in house, so many manufacturers offer to manage your IP PBX for you but at additional cost.

Hosted IP PBX

Fortunately, there is a way to get all of the advantages of an IP PBX without many of the drawbacks. It’s called Hosted IP PBX. Hosted IP PBX makes all of the IP PBX features available to a customer while a VoIP service provider owns, hosts, manages and updates the IP PBX
equipment. Typically, the service provider will charge the business a small up front fee to start the service and an ongoing monthly fee that includes all voice (local and long distance) and data (internet access) charges. Hosted IP PBX offers many advantages:

• No/Low Capital Costs – With no IP PBX to purchase there is no large capital expenditure
  needed. Some Hosted IP PBX solutions even let businesses use their existing telephones but some additional equipment is usually needed to ensure call quality.
• Predictable Operating Expense – Monthly voice and data charges are usually calculated on a per telephone basis. If you have 50 employees each with a telephone on their desk, your monthly operating cost will be 50 times a set fee. If you add people, you’ll know exactly how your costs will increase.
• No Maintenance Expenses – Because the VoIP service provider owns the equipment, they are responsible of all the costs associated with equipment and software upgrades.
• No Management Expenses – The VoIP service provider is responsible for managing the
  equipment. Routine changes like adding a new person to the system or changing an extension number are done by the customer using a simple, web interface.