Hosted VoIP (Hosted PBX) vs On-Premise VoIP (On-Premise PBX)

Cloud hosted VoIP services on the riseMaking the Call on Hosted vs. Premises-Based VoIP

While Voice over IP (VoIP) technology has been around since the 90’s, adoption of the technology by businesses has only begun to ramp up relatively recently. In fact, VoIP adoption rates for businesses are still only at about 15%, according to the FCC.

But those numbers are changing, thanks in part to the quality and reliability of VoIP services currently being offered, and in part to the range of options in service delivery now available. Today, businesses have numerous options when it comes to implementing VoIP and are able to select from a large array of service providers, carriers, equipment and software. Because of VoIP, businesses today have the option to implement voice systems with capabilities and configurations unlike anything that’s been seen before.

Making the Call

As with most technologies, there’s more than one way to accomplish the same objective, and there isn’t necessarily a wrong answer. It’s more a question of understanding what your business objectives and operational capabilities are and combining that with your preferences for support and your budgetary constraints.

But let’s assume that you’ve made the choice to implement a VoIP solution for your business, you’ve defined your requirements, and you’re now moving into the design phase for the new system. Perhaps the most basic question to ask is, “Should you implement a premises-based or hosted VOIP system?” While this might seem like a basic difference, it’s actually one of the most fundamental decisions that you’ll make in the whole process.

Installation and Maintenance

One of the key differences between a premises-based and hosted VoIP system is also the most basic difference. As the names would suggest, one model relies on equipment and software that’s installed at a location of the company’s choosing, like an office, and is typically managed by members of the technical staff for that company, or a third party that’s hired for the task. In a hosted VoIP model, the systems other than the physical phones, are provided virtually by hardware and software that’s hosted elsewhere and managed by a carrier or VOIP provider.

Premises-Based Installation and Maintenance

In the premises-based model, your team is on the hook for procuring, installing and maintaining the hardware and software used to provide the service. Everything related to the service, from cabling to call and session management, from voice quality management to voicemail and dialing features, are all your choice, and your responsibility.

And while this means that you have complete responsibility for the system, with all of the management headaches and pressure, it also means that you have complete control over the system, and can make whatever changes you like when you like, provided the underlying system can technically support them.

Hosted VOIP Installation and Maintenance

In a hosted model, installation and maintenance of the system is handled by the VoIP service provider, and all you typically have to do is indicate which features you want enabled. Other than that, all hardware and software upgrades, all maintenance activities, and all support requests are handled by the provider.

But with that ease of installation and maintenance, there are some drawbacks as well. For example, all support requests are now channeled to the provider’s support team, which means that you lose a certain amount of responsiveness and the ability to make quick changes to the system. For some companies, those with a lack of change control discipline, this can be a good thing – but for others, it can mean a reduction in responsiveness and agility.

Further, even if the hardware and software that provides the service is capable of supporting a certain feature, the service provider may not support that feature, for various reasons. And if that feature is something your business needs, you may be stuck.

Scalability and VOIP Systems

At some point, as the business grows, you’re likely going to run into the need to scale your VOIP system to support the business. This could come in the form of simply adding more users and phones or adding new features to support a new business initiative, or both. In those instances, the system needs to scale to meet the needs of the business.

This is usually where hosted VoIP solutions shine. Because the systems are hosted by a provider that builds to scale to support all of its customers, hosted VoIP platforms are typically much more scalable than premises-based solutions, both in terms of capacity and time to implement. Hosted VOIP systems are usually part of a much larger collective platform, which means that resources can be shifted as needed to meet business needs, much more quickly than internally supported systems.

If your business is experiencing rapid growth, or considering new business models that might drive massive increases in scalability (such as implementing call centers, for example), then a hosted model might work better for your business. If your business is fairly stable and unlikely to implement such models in the foreseeable future, then maybe not so much.

Dependency of VOIP on WAN

Clearly both hosted and premises-based VoIP solutions will benefit from WAN orchestration solutions for VoIP. However, unlike the premises-based PBX systems, the PRI or POTS based voice trunks are not an option in cloud-based solutions. All voice traffic needs to go over your office WAN network and therefore the uptime and intelligent management of VoIP traffic over the WAN links is crucial.

Understanding VoIP and the Bottom Line

There isn’t an IT decision made today that isn’t evaluated to some degree against budgetary considerations and constraints, and VoIP is no exception. VoIP systems offer cost savings over traditional phone systems, but implementing and maintaining them come with their own costs, and different business models will drive different cost models.

One of the first things to consider when comparing the costs between premises-based and hosted VoIP systems is the cost to implement the system, and this is where a true understanding of your budgetary approach is critical. Not only do you need to understand how much budget you have to work with, but also what kind of budget expenditures your business prefers to expend.

In a premises-based model, this means expending capital expenditures (CAPEX) in procuring the hardware and software up front, along with your staff’s time to build the system, or in hiring a third party to do it. In a hosted VOIP model, while there are some installation costs, the real costs come in the operating expenditures (OPEX) that pay the monthly fees. Understanding your business’ preference in regard to CAPEX vs OPEX is another critical factor in your decision.

Final Analysis

In the end, the answer to the question as to whether you should implement a premises-based or hosted VoIP model is the typical answer given by most IT departments – it depends.

As mentioned at the beginning of this post, the real answer to that question can only be answered once you understand your business, and what it takes to support that business. Once you understand the strategic direction of the business you support, the projections for growth of that business, your budgetary constraints, and your own team’s capacity to support a VoIP network, it makes it much easier to make the initial decisions.

This can’t be stressed enough – take your time in this phase of planning for the new system. Really learn about your business and its future. Be brutally honest about your staff and its capabilities. And make your decisions from real data points, not guesses or opinions. If you do this first, and do it correctly, it can make all the difference to your success from that point forward.

Cahit Akin, CEO, Mushroom Networks, Inc. 

Mushroom Networks is the provider of SD-WAN (Software Defined WAN) and NFV solutions capable of Broadband Bonding that enables self-healing WAN networks that route around network problems such as latency, jitter and packet loss.


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