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Making Sense of Traditional PBX, Hosted PBX, (and Sometimes SIP)

This article was updated on April 17, 2024

Whether large or small, modern businesses (and their customers) benefit from clear and reliable communication. But when it comes to finding the best small business phone system, it can be difficult to know where to start. How do you make sense of the various acronyms you’ll encounter — like the difference between on-premises PBX (private branch exchange) and cloud-based PBX, for example? Where does SIP fit in? And, finally, what should you consider when choosing a phone system for business? Keep reading for the answers.

Illustration of clouds with analog phone lines extending across the frame behind them, representing traditional and hosted PBXs

What Is a PBX?

PBX (or Private Branch Exchange) refers to a telephone switching system that relies on hardware and software components that connect together to form a communication network. Hosted PBX systems (also known as cloud PBX) typically leverage internet-based communication platforms — i.e., Voice over Internet Protocol, or VoIP. Let’s explore the options for a small business phone system.

Traditional PBX vs Cloud PBX: What’s the Difference?

There are two main types of PBX systems: traditional (or on-premises) and cloud (or cloud-based) PBX.

  • An on-premises (traditional PBX) configuration refers to a system in which all telephony equipment is located on-site, which primarily provides an internal, closed network of phones. These systems can allow external connectivity, but require SIP trunking, which enables digital communications via the internet.

  • A cloud-based or cloud PBX, by contrast, leverages cloud computing technology to provide PBX functionality for handling internal as well as external communications, plus opening the door to additional features.

These common small business phone system options offer more than basic two-way communication. They facilitate interaction between separate, dedicated extensions to help connect the right people at the right time. While older systems depend on physical, on-premises hardware, modern solutions take advantage of more flexible — and scalable — cloud options.

Vonage business phone solutions are hosted on Amazon Web Services (AWS), a native public cloud, while other cloud PBX may be hosted on private clouds. Our AWS connection allows us to leverage many advanced built-in capabilities, like high-availability, security, and more.

What Does SIP Mean in PBX?

On a very basic level, SIP (or Session Initiation Protocol) is involved in the initial set-up phase of a call (checking things like user location, availability, etc.). It defines how to establish a session (call), and how to control the call after it’s established (e.g. put it on hold, transfer it, and more). A different set of protocols moves the voice between phones.

All PBX systems — on-premises and cloud-hosted — now use SIP.

SIP can also be used to set up video and audio multicast meetings, or instant messaging conferences. SIP extends PBX functionality by enabling additional capabilities for quick and easy scalability, helping to prevent obsolescence.

SIP trunking is a way to connect a PBX to the outside world, via the public switched telephone network (PSTN) — i.e., landlines. Modern SIP trunking solutions offer real-time and multi-user sessions — even across multiple communication channels, in some cases.

Note that Vonage Business Communications customers don’t need to purchase SIP trunking separately — VBC is connected to the Vonage carrier network, which is connected to the PSTN world.

What Are the Advantages of VoIP Plus UCaaS?

As you consider different types of phone systems for business, note that VoIP offers many of the same core services of traditional telephone services, but it also provides several compelling advantages for modern small businesses, including:

  • Cost savings

  • Additional features

  • Mobility

  • Scalability

  • More security

The major advantage of combining VoIP with unified communications as a service (UCaaS) is comprehensiveness. UCaaS solutions provide all the features and advantages of hosted PBX (and SIP trunking), as well as benefits like:

  • Support and accessibility for remote and hybrid work environments

  • Quick, simple implementation processes

  • Easy, “hands-off” maintenance to lighten your IT team’s load

  • Real-time data security

  • Increased efficiency and productivity

  • Substantial cost savings, especially compared to on-premises and/or cobbled-together solutions

How Vonage’s VoIP Solutions Serve Small Businesses

Vonage offers intuitive and dynamic VoIP-based UCaaS solutions for organizations looking to:

  • Implement flexible communication solutions to better-meet your customers’ preferences and expectations

  • Simplify implementation and maintenance processes to increase efficiency and reduce costs

  • Collect mission-critical communications and collaboration tools within a single app/interface for an uncomplicated experience for employees and customers alike

Learn more about how Vonage’s enterprise-grade services for SMBs can improve communications and provide a better end-to-end experience for your team (and customers).

Stock photo of woman, a small business owner who is on her cell phone and typing notes into her laptop.
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