PBX vs. VoIP: What Are the Differences?

Choosing a new business phone system is a pivotal yet challenging decision as your business grows. While analog landlines have dominated business communications for decades, modern organizations are increasingly torn between legacy PBX vs. VoIP solutions. Around 31% of businesses now use VoIP systems,¹ with the global VoIP services market projected to surpass $278 billion by 2031.²

However, VoIP systems aren’t ideal for every business, and determining which solution can best meet your organization’s needs demands careful examination of the differences between these technologies across key factors, from costs and capabilities to security and flexibility. In this blog, we share an in-depth comparison between traditional PBX vs. VoIP phone systems to help you determine which is the right choice for your business.

What Is PBX?

A PBX (private branch exchange) is a private telephone network used within an organization. A PBX phone system enables employees to communicate both internally with coworkers as well as externally with clients and partners.

PBX systems have been used by businesses since the 1960s. While they originally required operators to route calls manually, these systems have evolved to become fully automated. Now, PBX phone systems use on-premise hardware to route calls between the company’s internal extensions and external phone lines.

Benefits of PBX Systems

PBX systems give businesses robust call management capabilities with features that allow employees to handle customer inquiries efficiently. Sophisticated call distribution tools, such as skills-based routing and priority queuing, also improve the customer experience. With a PBX system, calls can be routed according to staff availability, queues, and preconfigured rules to facilitate quicker response times, reduced wait times, and higher customer satisfaction.

PBX solutions also provide reliability through isolation from the public telephone network. These phone systems don’t depend on connectivity from an internet service provider, minimizing downtime risks. Hardware redundancy configurations also prevent single points of failure within the system, providing companies with a resilient foundation for their communication needs.

IP PBX

An IP PBX system is a PBX phone system that uses internet protocol (IP) to route calls, rather than traditional public switched telephone network (PSTN) lines.

Some key things to know about IP PBX systems:

Like a traditional PBX system, an IP PBX allows companies to share external phone lines between several office extensions. However, call routing and switching are completed over an IP data network instead of copper phone lines.
IP telephony converts analog voice signals into digital data packets to transmit calls over IP networks. Special gateway hardware may be used to interface between VoIP and PSTN traffic.
Benefits include lower costs by consolidating voice and data networking needs, increased flexibility through computer-based management, quick scaling to support more users, and integration with other IP-enabled business apps.
IP PBX can be deployed as an on-premises system or delivered as a hosted cloud service, which removes hardware management responsibilities.

In summary, an IP PBX can do everything a legacy PBX system does, but it transports voice calls over internet protocol instead of analog lines.

What Is VoIP?

VoIP (voice over internet protocol) is a technology that allows users to make and receive voice calls over the internet rather than traditional phone lines.

When you make a call using a VoIP system, your voice is transformed into digital data packets that are compressed and transported over the internet. Once this data reaches your intended recipient, it’s decompressed back into an analog voice signal for the call recipient to hear. This all happens in milliseconds, so there is no discernible latency or delay in VoIP calls.

VoIP call quality used to be poor, which prompted many businesses to use legacy PBX systems instead for better performance and reliability. But as internet speeds continue to improve, so does VoIP system call quality. Now, many leading VoIP providers deliver high-definition voice quality that matches – or even exceeds – traditional calls.

Benefits of VoIP Phone Systems

VoIP systems offer businesses significant cost savings over traditional PBX services. By leveraging the internet for calls rather than expensive analog lines, companies benefit from free internal calling as well as inexpensive local and long-distance service. International rates are reduced substantially compared to conventional providers as well, and VoIP pricing plans simplify budgets with predictable per-user monthly fees, bundling unlimited domestic calls, business features, and more.

In addition to reduced costs, a VoIP system can provide modern businesses with the advanced features they need to operate more efficiently. Solutions typically include features like intelligent call routing, multi-level auto attendants, detailed call analytics reporting, conference bridges, and video calling. These sophisticated capabilities maximize productivity and visibility to help organizations improve customer service and sales conversions, resulting in faster growth and ROI.

14 Differences Between PBX vs. VoIP

Both PBX systems and VoIP systems have their advantages, so how do you know which is right for your business? Here are some key differences between PBX vs. VoIP systems to consider before choosing a solution:

1. Costs

Installing a PBX phone system requires a hefty initial investment in hardware like servers, routers, gateways, switches, and handsets. Purchasing the equipment can cost thousands upfront or more for larger implementations, and that’s before factoring in the costs to install. With some PBX systems, you may need to invest in the required hardware first before even getting a quote for the software and applications.

VoIP phone systems leverage your existing internet connection and only require IP phones or computer softphones, making startup costs much lower. No other hardware is required since it utilizes shared infrastructure, and many VoIP providers don’t charge upfront costs or activation fees.

For PBX systems, businesses typically incur monthly costs for hardware maintenance, software licenses, feature add-ons, and per-minute charges for every call that crosses a public switched telephone network line. Incidentals like moves, adds, and changes often result in bills as well. VoIP services are usually subscription-based, with unlimited calling, software updates, features, and moves/adds/changes bundled into one predictable monthly fee.

2. Flexibility

As of 2023, nearly 41% of full-time employees work remotely at least some of the week.³ If your employees ever work remotely or use mobile devices on the go, you need a flexible business phone system.

Most PBX phones only work within the office, limiting flexibility for employees. Adding remote connectivity capabilities to a traditional PBX system usually requires additional hardware and modifications.

With VoIP technology, software apps allow employees to place and receive calls anywhere with an internet connection. Workers can use desktop and mobile devices from home or the road, and VoIP adapters also let your teams turn desk phones and mobile devices into virtual office numbers.

3. Service Delivery

One of the most fundamental differences between PBX vs. VoIP is how each phone system physically connects voice calls end-to-end.

Traditional PBX systems work by routing calls overlaid on private local area networks confined to each location. Connecting multiple locations requires dedicating wide area network capacity via Multiprotocol Label Switching (MPLS) links or PSTN lines, which can get very expensive.

VoIP systems leverage cost-efficient public broadband connections and shared telecom backbone infrastructure for transport. There’s no need to construct separate networks – your VoIP provider will just connect a local loop to set up your branch offices. This flexible service delivery model offers businesses enormous savings, especially for multi-site deployments.

4. Scalability

How do PBX vs. VoIP systems fare as your business grows and you need more phone lines and features?

With an on-premise PBX system, adding more handsets and lines requires purchasing additional hardware and licenses, which increases costs and complexities. VoIP makes growing easy – you simply purchase more handsets as needed or increase the number of users on your monthly service plan. No new infrastructure or technicians are required.

If you open new offices, a VoIP system can extend your phone network and functionality with minimal effort. Expanding a PBX network to geographically dispersed locations requires sizable investments to recreate the system in each branch office. Plus, cross-office PBX connectivity often requires costly SIP trunking or dedicated MPLS links.

5. Disaster Recovery

One significant advantage of PBX is its reliability. Since it uses physical phone lines instead of an internet connection, the system itself doesn’t rely on a third-party network to operate. Phone service can continue working even if your organization’s internet connection goes down. However, PBX hardware is vulnerable to disasters or failures. Flooded server rooms, failed switches, and similar events can completely wipe out a PBX system.

VoIP phone systems depend on your internet connectivity to function, so any service disruptions will disable phone service as well. However, leading VoIP providers deliver 99.999% uptime with failover mechanisms to reroute call traffic during outages, and voice data can be quickly restored from backups as needed.

6. Ongoing Management

Does your IT team have the capacity to handle time-consuming phone system updates, optimizations, and troubleshooting on an ongoing basis?

If your answer is no, VoIP is the way to go. With traditional PBX systems, your IT staff has to handle the bulk of maintenance and management needs. VoIP shifts this responsibility to your provider, freeing your team to focus less on phone support and more on core operations.

7. Contracts & Terms

In many cases, PBX phone systems require multi-year service contracts upfront before installation even begins. Breaking your contract can result in financial penalties, upgrades often mandate contract extensions, and few providers permit month-to-month terms without addendums.

VoIP platforms promote flexibility. Term contracts aren’t required for most services, and month-to-month subscriptions are widely available. In some cases, short one or two-year terms may be required for larger plans, but you maintain control to pivot providers or technologies as business needs evolve rather than waiting out long agreements.

8. Advanced Features

What calling features does your business need out-of-the-box with a new phone system solution?

Basic PBX phone systems focus mainly on call routing capabilities. Additional features like auto-attendants, voicemail transcriptions, or CRM integrations often require purchasing specific add-on hardware and software at added expense.

VoIP providers typically deliver all of these features plus video conferencing, call analytics, advanced call queues, and more at each plan level. Your IT teams spend less time custom-programming features for faster deployments and user adoption.

9. Upgrades

Expanding capacity for a PBX system often requires expensive “forklift” upgrades – replacing server cores, port boards, network modules, and more. Downtime typically accompanies these complex installations, and specialized technicians may charge premium rates to implement them. Multi-office upgrades can take weeks or months to complete.

Since a VoIP phone system uses scalable cloud infrastructure, increasing users, adding features, or adding new locations can be done nearly instantly in a self-service portal. Having the freedom to choose the upgrades you need on your own time sidesteps costly delays, as you can scale your phone service up or down in minutes.

10. Security

Security is a top priority for every modern business leader and should be a major consideration when choosing between PBX vs. VoIP.

PBX systems are closed networks isolated from external access by design. This makes attacks like eavesdropping unlikely without physical access to your phone system equipment. However, misconfigured PBXs have been hacked when exposed to public networks, and PBX spoofing remains a common security issue for some legacy systems.

VoIP technology runs on shared infrastructure, so providers often offer robust tools like encryption, access controls, and data loss prevention capabilities to match PBX-level security. Evaluating any potential provider’s security roadmap is an important step before selecting a VoIP phone system.

11. Call Quality

52% of businesses still consider phone calls to be their primary communication tool,⁴ making call quality essential to business operations.

PBX phone systems generally offer reliable call quality, as they benefit from dedicated connectivity isolated from other networks. VoIP quality used to be inferior, but improved codecs and high-speed broadband access have practically eliminated any disparities. Network assessments help ensure appropriate bandwidth for VoIP systems based on usage, so both solutions provide clear call connectivity today.

12. Compliance

Legacy PBX systems were designed before regulations like HIPAA and PCI DSS took effect. Adapting outdated platforms to meet compliance burdens often requires extensive reconfigurations, specialty hardware installations, or even replacing the phone system altogether.

The right VoIP provider will have experience serving regulated industries like healthcare and finance. Native security capabilities like encrypted signaling/media, access controls, and data loss prevention make it easier to meet and maintain compliance standards, and auditing tools and reports simplify the process of demonstrating adherence.

13. Emergency Calling

Basic PBX systems lack any native 911 connectivity since handsets are isolated from public telephone networks. Upgrading to meet Enhanced 911 (E911) requirements involves updating firmware, adding specialized hardware, and registering location details across the organization – and even then, its reliability can vary.

VoIP solutions are required to support E911, so they include security measures like geo-IP mapping and location registration to ensure accurate, reliable routing of emergency calls to local dispatchers. Additionally, a VoIP system provides caller ID that displays the correct office or mobile numbers so law enforcement can see addresses immediately.

14. Integrations & Customization

PBX systems tend to be hardware-centric rather than software-defined. Integrating new functionality or implementing specific customizations requires replacing gear to upgrade proprietary hardware and must often be performed by the phone system provider.

Mature VoIP solutions are built API-first, so it’s easy to add custom applications and integrate systems like CRM, helpdesk, ERP, and other tools. Pre-built connectors accelerate deployments, and plug-ins and expert support can help you take customization even further.

PBX vs. VoIP: What’s the Better Choice for Your Business?

Ultimately, determining whether a PBX vs. VoIP system is the right fit will depend on your organization’s unique needs and priorities. But while it’s important to consider factors like your budget, growth plans, compliance, and more, it’s clear that modern VoIP phone systems are often the superior choice for today’s growing businesses compared to traditional PBX platforms.

If you’re ready to get started with a flexible phone system that offers the features and functionality your business needs to stay productive in today’s work-from-anywhere landscape, Granite can help. Our cloud-based VoIP solution, UNIFI360, offers seamless scalability alongside a mobile app that provides full business phone functionality for continuity if desk phones become unavailable. And with unlimited remote support from our Business Hour Help Desk, you can rest easy knowing your teams are connected at all times.

Reach out to the Granite team today to learn more about how UNIFI360 delivers the essential voice tools your teams need to collaborate.

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