What'S Up With Hosted Voip Phone Service?

"The Cloud" is the rage right now. From completing your tax return to converting one document type to another, from document storage and backup to document creation, from web site management for small business to customer relationship management using CRM software in "the cloud", "the cloud" keeps on getting bigger and bigger.... and more enticing. It's enticing because IF it's out in the cloud, then it's managed by someone else and you don't have to manage or install any software on your own computer. That is the main benefit of "the cloud" as I see it.

There are other benefits to cloud computing. From what I see, aside from not having to manage the software,  the benefits can include low cost or no cost applications.

There are many free software applications in the cloud. Microsoft Office Live Small Business, Google Docs, Skype and OutRight.com to name a few. There are many low cost software applications in the cloud, Google Voice being one and possibly Google Apps being another.

Hosted phone service is another cloud application being offered. Hosted phone service is often touted as being better than on premise phone service because it is a managed service; someone other than you manages the system and software updates. But "better" in this case does not mean low cost - that is one of it's drawbacks.

Before I delve into the pros and cons of hosted phone service, let me explain what I mean by the terms "hosted phone service" and "on premise" or "on-prem phone service".

Just as I've talked about other hosted services in this article that are out "in the cloud", hosted phone service also exists as a "cloud" service. But, hosted phone service is different than the standard phone service you would buy from a phone company like Bell, Primus, Rogers or another carrier.

Standard phone service from, for example Bell, Primus or Rogers, gives you dial tone and a few features like call waiting, call forwarding, call display and in the case of a business phone line, the ability to have one phone number "hunt' to the next non-busy line on an incoming call. Hosted phone service gives you all of that plus more feature-benefits which, until very recently were built-in to the on-prem phone system switch, (a phone system switch referred to here as a Private Branch Exchange or PBX for short) that businesses would have in their building, "on-prem" for the use of employees.

That PBX, whether in the cloud as a hosted service or on the business premises, gives businesses the ability to have 10, 100, 1000 or more phones that share 2, 10, 50 or more outside phone lines. The PBX provides features like call park, call transfer, conference bridging, voicemail or new feature-benefits like findme/followme and voicemail to email. The main difference between a hosted phone service and an on premise phone service is in the location of the PBX, the former being in the cloud and the latter being on-prem.

Both hosted phone service and on-prem PBX's have their advantages/benefits and disadvantages/drawbacks.

The benefits of hosted phone service include:

  1. Software management is easy - someone else does it.

  2. Lower initial capital outlay than there would be for an on-prem PBX.

  3. Service charges are the same each month - makes for easier budgeting.

  4. Service charges can be written off as a business expense.

  5. Lower hardware installation costs - only the phones need installing.

  6. You deal with only one service provider for both your phones' connections to the cloud and the phone lines.


    Click Here to See the attached image diagram, describing Hosted VS On-Prem Phone Service.

The drawbacks of hosted phone service include:

  1. The service is expensive. Billing is per user per month, between $30 and $40 per user per month. Each phone equates to one user.

  2. Even with plans that allow the sharing between users of voice channels to the cloud, the monthly cost can easily reach $400 to $500 in an office with 50 phone users. This amount may seem small compared to what some businesses pay now to a traditional carrier, but with an on-prem PBX greater savings are available.

  3. Lower initial capital outlay, but you will still need to buy the phones. For a 50 person office you could spend $10,000 or more on phones. The cost of the PBX for an on-prem system in a 50 person office is normally between $1000 and $2000.

  4. A high bandwidth connection to the Internet is required. Because all phone-to-phone and phone-to-PBX communications go out over your Internet connection, your current DSL or cable Internet connection may not be able to handle the call volume and you may need a dedicated Internet connection or a high bandwidth fibre optic Internet connection.

  5. All of your calls go over your Internet connection which, in cases of insufficient Internet bandwidth, can occasionally cause voice quality issues. In cases where you may experience voice quality issues there is no option, as there is for an on-prem PBX, to connect to Bell, Rogers or another carrier's land lines.

It may be that for your business a hosted phone service with the PBX in the cloud provides the best options and balance between affordability, manageability and usability. If this is the case for you, then I would recommend going with a hosted solution for phones.  From my perspective however, the PBX belongs on-prem. The main reason I say this is the cost. While an on-prem system will cost more at the start, in the long run it is much less expensive compared to a hosted solution. The monthly payments to a VoIP service provider for service are easily one fourth or less the monthly payments for hosted service.

Moreover, today's on-prem PBX systems are low cost and extremely reiliable. Once installed and configured the way you want it, a PBX for your business will literally run for years without being touched or needing to be restarted. As well, they are easily managed by the end user with a web based graphical user interface.

Most companies selling on-prem PBX's can provide you with a maintenance plan that includes changes to the system, usually done remotely for pennies a day. This is much less than you would pay for someone else to manage a hosted PBX for your business.

Of course there are advantages and disadvantages to an on-prem PBX too. Stay tuned......