Premise VS Hosted Phone Systems

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Discover the ideal phone system for your business needs, whether it's the flexibility of a hosted solution or the control of an on-premise system, guiding you through a practical, business-oriented approach.

Talking to our customers nowadays the question often comes up about whether they should use a hosted phone system or an on-premise phone system? We want our customers to understand how these systems work so that they can know which solution is best for them. When dealing with our customers we take “business operational” point of view — and try not to get bogged down in technical details and specifications. We want to help you pick the system which will help your business “work best”.

To do this we will get to know your business and your business processes and objectives. We will also help you understand how the decision of which phone system is best for you is affected by company culture and the partnership with Omaha Communications — your trusted technology advisor.

What is On-Premise Phone System?

On-Premise phone system is what has traditionally been referred to as a PBX or simply a “phone system”. An on-premise system is one where the physical core – the servers and switches – that make up the system are typically either owned or leased by the user and are located on the customer’s physical premises. These systems can be on-premise VoIP or Digital. Nowadays, new phone systems are virtually always VoIP. But regardless of whether your phone system is VoIP or Digital you will still need “phone service” (sometimes called dial tone) which connects your system to the PSTN (Publically Switch Telephone Network). This connection is what allows you to place calls outside your company whether it is local, long-distance or international.

With on-premise VoIP phone systems you the choice of getting “dial tone” from a traditional telecom, cable provider, or a SIP trunk provider. This dial tone will come directly into your location and connect into the phone system. With an on-premise system, your company will be responsible for maintaining and “administering” the servers and switches which make your system work. Typically this will be done by your company’s IT Staff or it will be contracted out to your Technology Service Provider – like Omaha Communications.

What is a Hosted Phone System?

Hosted phone system or virtual phone system is a cloud-based phone system. The only hardware onsite is the physical phones and network PoE switches. All the “core” components are “hosted” in an off-site data centre where they are maintained and administered by your Hosted Provider. The hosted phone system is traditionally a large phone system in a data centre which is segmented into smaller “virtual systems” for the subscribers. The dial tone is provided by the hosting company as well and this can result in a big cost savings for the customer. The end-user location is connected to the virtual phone system via the internet. Smaller companies often choose to use their standard internet connection to connect them. But larger customers (with more simultaneous phone usage) will want a dedicated circuit to ensure that the quality of the call is not degraded by the volume of calls or internet latency.

Ok, but which one is the best use of my money?

One of the most common considerations when considering a premise vs hosted phone system has to do with your company’s financial preferences. The most simplistic way to think of the two options is hosted = operational expense and on-premise = capital investment.

A hosted phone system will have a lower upfront cost, typically buying the phones and a PoE switch. For some applications, you’ll also buy a router. Then you will have the cost of labour for the configuration and an ongoing monthly expense for the user seat, dial-tone, and features. The thing about a cloud-based phone system monthly expense is that it never ends. You are subscribing to a service.

An on-premise phone system you will have a larger upfront cost. However, this distinction can be mitigated by financing your system. You can convert this upfront capital cost into an operational expense by leasing or borrowing money. If you plan on keeping your phone system for a long time – past the time you pay off your lease – then, in the long run, the cost of a premise-based system can be significantly lower.

Another consideration in choosing a hosted or premise-based system is how sophisticated your IT Staff and infrastructure. If you maintain a large skilled staff of IT professionals it is possible that you can maintain and support your own premise system. But a premise-based system is certainly more costly to support than a hosted system – since the hosted provider provides all system maintenance and support as part of the monthly fee. This makes hosted a much more attractive solution for small businesses since they often do not have a large and sophisticated IT Staff to depend on.

What are the network requirements for the Hosted vs Premise?

No matter whether you select a hosted solution or premise based solution it is critical that your network is set up to support voice traffic. The difference is the connection of your local network to the Internet. With a hosted solution it is critical that your connection has enough bandwidth and control over latency to transmit and receive your voice traffic and the phone systems signalling and control. With a premise-based phone system connected to the PSTN through standard digital lines from the phone company or cable provider, you are typically safe to assume that your connection will be reliable. But, if your service provider provides SIP Trunks you still have to be sure that your internet connection has sufficient bandwidth and sufficient low latency to transmit reliable quality voice traffic

But, how do I keep my phone system from becoming out of date?

This is another situation where a hosted solution has the upper hand. The hosted provider will constantly be updating the features and functions of their system in the data centre. With a premise-based system you can update features with software upgrades. But, eventually, the servers and switches which run your phone system may become obsolete and require replacement. Eventually, your premise-based system may be so obsolete that it requires complete replacement

What about specific applications?

Sometimes a customer has a special need for a feature application or software or hardware integration. Typically these are more likely to be supported by a premise-based system, For instance, up-to-date the best “emergency notification packages” are not available for hosted solutions. This can be a “critical application” for a customer like a school or a hospital. Integrating legacy access control systems or intercoms can also be easier using a premise-based system. This is a reason it is important to work with a trusted advisor to make sure that you choose the system which is right for your organization

A note about QOS (Quality of Service)

Quality of Service (or QoS) is the most important piece when discussing Voice over IP technology. The QoS is basically the “guarantee” from your Telephone provider that your phone calls will always sound great without distortion or “dropouts”. These audio flaws are a result of calls be transmitted with packet loss or jitter and the When your QOS fails calls can be hard to understand. Most of us have experienced poor QOS occasionally from our cell phone providers. This poor QOS can not only make calls hard to understand they can make a bad impression on your clients or partners

Most hosted providers offer a “Bring Your Own Bandwidth” solution. This means your hosted provider will simply point your business phone system to connect with your office’s and remote location’s IP address using the public internet to transport the voice traffic. “Voice” is different from most data in that it is real-time. Any interruption in the voice traffic can result in pack loss, jitter, and poor call quality. With the public internet, we lose the ability to provide Quality of Service (QoS). The only way to truly provide QoS over the internet is to use what is called a “dedicated circuit”. This will be a substantial extra expense every month.

There are many different parts that must work together to make your phone system work properly. There are servers, software, routers, switches, and circuits. But, one of the most important “parts” to make your system work is the quality advice you get from your trusted technology partner. That is where Omaha Communications comes in. We have served our clients for 25 years as trusted partners and we have earned our reputation as people that listen with technology that works.

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