Benefiting from VoIP – Hosted or Premise?

April 22, 2010 by Arthur Miller

A lot of businesses these days find themselves faced with tightening budgets and outdated phone systems deployed 10 or more years ago. I speak with these types of businesses everyday; owners or IT administrators looking at exploring whether or not a VoIP system is a good fit for their organization and how to approach putting a system together or approaching a service provider.

While hybrid solutions exist and the use of a VoIP gateway can allow many companies to deploy VoIP using their existing infrastructure, most people I speak with these days are interested completely replacing their existing phone system.

For this there are two ways to approach this project:

  • Hosted VoIP Phone Service
  • Premise VoIP Phone Systems

Each of these solutions bring with them benefits. How substantial these benefits are to you, will of course depend on your situation.

Let’s look at the three main points to consider when looking at how each solution could best benefit your business.

Cost Flexibility Support

The benefits of going with a hosted VoIP phone service include a lower entry cost and the ability to let your IT Staff be your IT Staff and run your network, not your phone system. Your features are relegated by the plan that you select when you choose your service provider.

The majority of organizations using hosted services receive support from the provider. If you are a business without an IT staff you have the opportunity to ‘point the finger’ back at your hosted provider for some help with any configuration issues or if something were to ever go wrong.

The benefits of a premise based VoIP phone system include a lower total cost of ownership and the ability to pick and choose what features you would like to implement and develop on your phone system. Many businesses that are looking to go this route are integrating an ERP or CRM system together with the phone system to allow for a smoother work flow and increased level of customer service.

You are typically supporting yourself with premise based systems, but many of the manufactures offer very good phone and email support options. If you are running asterisk or a variation of asterisk you have more limited support options, and should probably count on having your IT department spend a little more time setting up and managing the phone system.

If you are not running asterisk there are a number of phone systems that allow you to manage, maintain and set up your system through the use of a web GUI (think clicking, dragging, and dropping) administrative menu (like Switchvox). Though these systems typically offer the highest level of support, implementation and administration is much less involved because they are designed with the idea that they will be self managed.

Cost of Dialing

When first examining VoIP people usually picture an internet cloud and dialing out through the cloud until your call reaches its destination. VoIP that is illustrated like this, over the WAN, is a great way to reduce costs on long distance calls but does not necessarily result in large savings unless the majority of calls are long distance or more noticeably international long distance. Hosted providers typically have flat rates for international, domestic, and local calls but still allow you to utilize features that result in greater productivity.

Premise based VoIP systems allow for a little more variety. Your business can choose between integrating PoTS lines, T1 or PRI connections or using SIP Trunks. You can take advantage of using your existing analog lines (they have been around for over 100 years and will probably be around for another 100 years) and still use a premise based VoIP system. Businesses utilizing existing analog lines are generally not looking to save money on their phone bill but are looking to take advantage of the features of VoIP (think of this as VoIP on the LAN).

There are also many service providers that offer T1 or PRI at very aggressive rates and will still interface with your premise based system. Many businesses look to integrate SIP trunks on a premise based PBX which allows them take advantage of reduced calling rates and the possibility of eliminating analog lines. Premise based VoIP phone system users will often mix and match these multiple ways of receiving dial tone to increase redundancy and decrease cost.

Cost Versus Features

Cost is just one component when choosing between a hosted provider or premise based system. Each provider and phone system offers its own set of unique features. After you have created a budget, the features on the phone system /provider will differentiate one over the other. A closer examination of these features will allow you to make the decision as to which option provides the best value for your business.


  • From a technology perspective, there should not be a difference in voice quality and reliability between a Premise Based VoIP service and a Hosted VoIP service assuming the 2 alternatives have comparable hardware, software and internet connections.

    Generally, the cost associated with owning voice over IP equipment (Premise solution) is not economically justified until the number of users exceeds 250. This is because the cost of implementing a Premise based VoIP solution requires a significant amount of upfront capital and the commitment of at least 2 full-time IT staff to support the system.

    The primary non-economic reason for Premise Based VoIP solution is if your company has specific applications such as a CRM application, that requires customization of the VoIP phone system. Generally, Hosted VoIP Solutions allow less customization than Premise Based VoIP solutions. Custom applications also require an additional commitment of staffing resources.

    A Hosted VoIP Phone Service frees your company from the burden of managing the security of the locations that house your system. The hardware that runs a Hosted VoIP service should be housed in an ultra secure location located with redundant facilities. Among the many security features of such a location is a backup power supply that can keep the facility running for at least 15-days along with a team of technicians that monitor the systems 24/7.

    A Hosted VoIP Phone System also does not require the purchase or maintenance of VoIP hardware and software and is therefore easier and much less costly to implement. IP telephone sets, a specialized router are the only hardware that is required to install Hosted VoIP phone system.

    Basic Parts of Business VoIP Telecommunications Service

    There are 2 types of VoIP services; Group Services and User Services.
    Group Services are VoIP PBX Features that allow you to control how calls are handled by your telephone system. Group Services gives you the ability to easily and with no additional hardware, customize how calls are routed to and from your organization.

    The power of Group Services lies in its ability to unify your company’s telecommunication system under a single phone system regardless of the physical location of your offices. Home Offices can even be incorporated into your telephone system.

    The Auto-Attendant is an example of a Group Service. With a Voice over IP Auto-Attendant, calls are automatically routed to any geographic location within your company. Calls can even be routed automatically to a home office or a cell phone.
    User Services are the VoIP Calling Plans of your phone system that your employees can customize to meet the unique requirements of their position within your organization.

    Examples of User Services include voice mail and call forwarding.

    Pricing Considerations

    Most organizations are initially drawn to VoIP because of the savings that a VoIP system offers. After using a VoIP phone system for a while, most companies realize they can gain an additional return on investment by taking advantage of the Advanced VoIP Features available with VoIP technology.

    Pricing Comparison

    A cost comparison between Service Providers can be a little tricky because each Service Provider has a different way of pricing their product. Hosted VoIP Service providers generally charge a monthly fee for each “service” they provide. In addition to the monthly cost for services, some VoIP Service Providers charge for the initial installation as well as for moves, add’s and changes to your system.

    One of the biggest benefits of VoIP is that with the exception of the IP phones, all repairs to the system can be done remotely and with very little effort or expense.

  • eric clope

    Something I have always bonked on was if a site has phone service provided by a hosted pbx provider; what happens when the internet link drops and they want to do extension dialing? What then? What are companies out there deploying (local sip proxy) to get around this?

    • Garrett Smith

      @ Eric

      Most SIP trunking/hosted service providers allow customers to utilize an FXO gateway so that they can keep a connection to the PSTN, should their internet connection go down. Other companies, typically smaller ones, who use hosted services often set-up their service to roll over to their company cell phones should service be interrupted due to loss of internet connection.

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