Hosted VoIP vs on-premise PBX: which suits your business?

If your old phone system is due for replacement, the big choice is hosted VoIP vs on-premise PBX: a phone system that lives in a provider's data centre, or one that sits in a box in your building. We fit both, so this is an honest look at where each one wins, what each costs you over time, and what happens on the day the internet goes down.

The short answer

• Hosted VoIP suits most small businesses, and almost anyone with home workers or more than one site. Low upfront cost, nothing in the cupboard to look after, and calls follow people wherever they are.
• An on-site PBX suits businesses that want control and own their kit: larger offices with lots of extensions, sites that need internal calls to keep working whatever happens, or firms with a recent system that still has years left in it.
• Both need a good internet connection now. Once the old copper lines are switched off, outside calls go over the internet either way.
• Your numbers come with you whichever you choose.

What is hosted VoIP?

VoIP (voice over internet protocol) just means phone calls carried over the internet. With hosted VoIP, the phone system itself (the part that routes calls, runs hunt groups, plays your greeting and handles voicemail) runs on a provider's servers in a data centre. Your desk phones, laptops and mobiles connect to it over the internet.

You pay per user each month. Changes, such as a new starter or different opening hours, are made in software, often in minutes. There's no box on site, so there's nothing in your building to fail, update or replace.

What is an on-premise PBX?

A PBX (private branch exchange) is the phone system that lives in your building. Modern ones are IP PBXs: a small server or appliance in the comms cupboard that your phones plug into over the office network. The on-site systems we fit are Grandstream IP PBXs, from its UCM range.

Older PBXs connected to the outside world over analogue lines or ISDN. Both are being switched off, with most lines expected to have moved by the end of January 2027. A PBX that's staying needs connecting through SIP trunks instead: phone lines delivered over your internet connection. So an on-site system doesn't get you away from relying on the internet. It just moves the brains of the system into your building.

Our PSTN switch-off guide has the dates and a checklist if you're still on the old lines.

Hosted VoIP vs on-premise PBX, side by side

Neither column is "better". The right one depends on how your business works.

Who hosted VoIP suits

Hosted VoIP is the sensible default for most small firms we see:

• Teams of up to a few dozen people, where a per-user price is easy to budget and nobody wants to own a server.
• Businesses with home workers or staff on the road. The app on a mobile or laptop is the same extension as the desk phone.
• More than one site. Every office joins the same system, so transfers and hunt groups work across all of them.
• Firms that want predictable costs, with no big replacement bill in five or seven years.
• Anyone who changes things often: seasonal staff, new starters, changing opening hours.

Who an on-site PBX suits

An on-site system still makes good sense in the right building:

• Larger single sites with many extensions, such as a factory, care home or school, where per-user monthly fees add up and the upfront cost spreads over many phones.
• Sites where internal calls must keep working, even when the internet is down: reception to the warehouse, the workshop to the office.
• Businesses with a recent IP PBX that still has years of life in it. Connecting it to SIP trunks can be cheaper than starting again.
• Firms that want their data in their own building, such as call recordings kept on their own kit under their own policies.
• Sites with analogue extensions (door entry, paging, older handsets) that a local system with the right ports can keep running.

What happens when the internet goes down?

This is the question people ask most, and the honest answer is that both rely on your connection for outside calls.

With hosted VoIP, the system keeps running in the data centre even when your office is offline. The desk phones in the building go quiet until the line is back, but incoming calls don't have to ring out: they can be diverted to mobiles, or answered by staff on the phone app over 4G. Customers still get through.

With an on-site PBX, calls between extensions in the building carry on, because the PBX and phones are on your own network. Outside calls stop unless there's a second way out, such as a 4G backup router or a second internet connection the SIP trunks can fall back to. If the PBX itself fails, everything stops until it's repaired.

Either way, two things help a lot:

1. A backup connection. A 4G or 5G failover router is a modest cost compared with a day without phones. See our guide to leased lines and business broadband if your connection needs looking at.
2. A UPS (battery backup) on the router, network switch and, for an on-site system, the PBX. Digital phone lines don't carry their own power, so without one the phones go off in a power cut.

Keeping your phone number

Changing phone system doesn't mean changing your number. Your existing numbers can be ported to hosted VoIP or to SIP trunks on a PBX, and Ofcom's rules mean you don't pay directly for the right to bring them. Our guide to keeping your business phone number explains how porting works and the one mistake to avoid.

Questions to answer before you choose

Run through these before talking to anyone, us included:

1. How many people need a phone, now and in three years?
2. Where do they work? One office, several sites, home, on the road?
3. What must keep working if the internet drops? Outside calls, internal calls, or both?
4. What's your internet connection like, and do you have a backup?
5. Do you already own a phone system, and how old is it? Will it take SIP trunks?
6. What else plugs into the phones? Door entry, paging, alarms, lift phones. Our guide to alarms, card machines and lift phones covers these.
7. Do you need call recording, and where should recordings be kept?
8. Who will look after it? An on-site system needs someone to update and secure it.
9. What's the total cost over five years? Upfront plus monthly, not one or the other.

How we can help

We supply and support both, so we've no reason to push you one way. We'll look at how your team works, check your internet connection, and recommend whichever fits. Hosted VoIP is from £7 +VAT per user a month, plus £2.50 +VAT per number. On-site, we fit Grandstream phone systems, quoted for your building, and Grandstream handsets either way.

Get in touch and we'll talk it through, starting with a free survey of what you have now.