IP PBX: What It Is, How It Works & What Are Your Alternatives

47% of companies are migrating away from on-premises solutions to embrace the benefits of the cloud. For many, however, letting go of the trusted on-premises phone system is intimidating.

An IP PBX lets you keep your on-premises hardware while also making calls over the internet. If you’re not ready for full cloud migration, it’s a sound solution. 

But is it the right solution? What are the benefits and limitations of IP PBX, and should you consider a fully cloud-hosted VoIP phone solution instead?

Keep reading to find out.

Key takeaways:

• An IP PBX is an on-premises phone system infused with VoIP calling functionalities.
• The primary tech behind IP PBX is SIP trunking, which lets you send voice, video, and other multimedia over an internet connection.
• Businesses opt for IP PBX because they want to keep their existing hardware. Plus, it’s low-cost and less disruptive for non tech-savvy employees.
• IP PBX has some critical limitations—maintenance is complicated, remote working is difficult, and streamlined scalability is almost impossible.

What Is IP PBX?

An IP PBX is a type of business phone system that uses Internet Protocol (IP) to connect on-premises PBX infrastructure and hardware to the internet. 

So, internal and external calls are established and handled over an internet connection instead of the public switched telephone network (PSTN). 

To make the term IP PBX a little clearer, let’s compare it to two other types of phone systems: the traditional PBX and the VoIP-based PBX. 

A traditional PBX phone system:

• Has telephony infrastructure and hardware housed and managed on-site
• Includes equipment connected to the PSTN via physical copper wiring, and all internal and external calls run on analog lines. This gives businesses basic calling functionalities. 

A cloud-based PBX solution:

• Features infrastructure hosted and maintained by a VoIP provider within remote cloud data centers. 
• As with an IP PBX, it uses IP telephony to enable users to make and receive calls over the Internet.

You can think of IP PBX as a midway point between traditional PBX and VoIP-based systems. It has hardware that’s hosted and managed on-site (like traditional PBX) but is connected to the internet (like VoIP-based hosted systems).

Let’s take a closer look at the main bits of tech supporting IP PBX systems.

What Is “Internet Protocol”?

“Internet Protocol” refers to a collection of rules and methods that govern the addressing and routing of data over the Internet. This includes voice, video, fax, instant messages, and other forms of data.

What Is a “Private Branch Exchange (PBX)”?

PBX stands for Private Branch Exchange and it refers to your company’s internal telephone network. It handles the routing and switching of internal and external calls within your private network via either analog lines, digital lines, or VoIP.

Given That, How Does IP PBX Work?

There are two foundational technologies behind an IP PBX: VoIP and SIP trunking. 

Voice over Internet Protocol (VoIP) is the technology behind internet-based calling. When you make a call, your analog voice signals are converted into digital data. This data is split up into tiny packets that are tagged with the calling information. 

From there, the call is sent over your internet connection to your VoIP provider. Your provider uses VoIP codecs to compress the data for sound quality and then routes it to the recipient. Upon reaching their destination, the packets are reassembled, decompressed, and converted back into audio.

All of that happens behind the scenes and instantaneously. You can think of it simply like your voice being packaged up into small parcels, delivered over the internet, and put back together again. Meaning the other call participant can hear you clearly and easily.  

However, IP PBX solutions can’t natively make VoIP phone calls. This is where Session Initiation Protocol (SIP) trunking comes in.

SIP trunking gives on-premises PBX systems VoIP calling abilities. Essentially, it connects your legacy PBX system and IP desk phones to the PSTN over an internet connection, using virtual lines known as SIP trunks. Think of them like the digital version of a copper wire landline.

Watch this video for a visual explanation:

SIP trunks themselves use virtual session border controllers (SBCs) to establish this connectivity. A single SIP trunk contains multiple channels to allow you to make and receive simultaneous VoIP calls. 

You can also transmit other types of multimedia, like voice, messaging, voicemails, and fax.

Why Do Businesses Choose IP PBX?

As the traditional PBX becomes obsolete, we hinted that businesses have two main choices: IP PBX, or cloud-hosted PBX. Here’s why you may want to opt for IP PBX:

#1 Keep Your Existing Hardware

On-premises PBX systems require extensive physical hardware—IP PBX servers, phone lines, desk phones, and more. A full switch to the cloud means that all of the investment into this equipment is essentially written off. 

With an IP PBX, you can keep your existing hardware while still enjoying the benefits of VoIP. This is particularly appealing to large companies with complex, expensive PBX infrastructure.

#2 Minimize Change

Switching from a traditional PBX to a fully cloud-based system is a huge and sometimes intimidating change. 

There may be pushback from employees who are comfortable with the old system. Or, the new system might have a steep learning curve. Either way, this can lead to disruption and productivity loss.

IP PBX systems minimize the change. Employees can use the systems and interfaces that they’re comfortable with while accessing new capabilities at the same time. This makes them a perfect stop-gap if you’re not ready to onboard your teams onto a cloud solution.

#3 Lower Costs

An IP PBX solution isn’t as cost-effective as a full-fledged VoIP-based phone system. That said, they’re typically cheaper than traditional PBX systems thanks to SIP trunking. 

SIP trunking enables VoIP, which means you can take advantage of low-cost long-distance and international calling. You can also centralize your phone system to enable free internal calls between multiple offices, significantly lowering operational costs.

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The Limitations of IP PBX

A business IP PBX might be better than a traditional PBX, but it still has a few shortcomings in comparison to a hosted VoIP solution: 

#1 Maintenance of On-Premises Infrastructure

To maintain on-premises infrastructure, you need specialized expertise. Someone in your organization must manage configurations, integrations, updates, and a host of other duties. This typically requires hiring a team of dedicated engineers, which can get expensive. 

On-premises infrastructure is also susceptible to single points of failure. If your central PBX encounters technical difficulties, it can cause widespread disruptions and downtime to your phone communications. 

With a fully cloud-hosted VoIP system, it’s a different story. Everything from maintenance to upgrades and emergency fixes are handled entirely by your provider as part of your subscription.

Plus, your telephony hardware is housed in redundant, globally distributed networks. If something goes wrong, you can still communicate just as effectively.

 #2 Remote Work Gets Complicated

Even when given IP connectivity, on-site PBX systems are simply not built to support remote working. 

The phone system typically still needs to be used via the on-premises PBX hardware. To facilitate remote communications, you’d need to perform elaborate workarounds (and there’s no guarantee they’ll be successful). 

If you want to allow remote working, you’re better off with a fully cloud-hosted phone system. They’re designed to empower users to communicate with colleagues and customers from anywhere, and on any device. 

#3 Your Scalability Is Limited

On-premises systems are notoriously difficult and expensive to scale. 

You’ll need to purchase more equipment and lines if your team grows. This makes an IP PBX system for small businesses particularly resistant to growth.

Cloud-hosted systems are inherently scalable. You can add new users, offices, and features to your phone system as and when you want them with minimal effort. Plus, you can scale down if you need to without the burden of wasting money on unused equipment. 

Get All the Benefits of IP PBX and More With CloudTalk

An IP PBX is a helpful stop-gap for businesses that aren’t ready to fully migrate to the cloud. But if you’re looking to get all of the benefits of internet telephony without the limitations, opt for a VoIP phone system.

CloudTalk’s VoIP-powered business calling solution provides the same benefits as IP PBX—internet-based calling, cost savings, and flexibility. Plus, it comes with advanced communication features that you just can’t get with an IP PBX, such as automatic call transcription, customer sentiment analysis, and more.

Most importantly, a hosted VoIP system overcomes the common IP PBX limitations. You don’t have to handle maintenance, you can scale up and down whenever you need to, and users can work from their PC, laptop, or mobile devices from anywhere in the world.

Interested? Contact our sales team or sign up for our free trial.

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