On-Premise Phone Systems VS. Hosted Phone Systems

In our industry we run into the question of “Do I use a hosted phone system or an on premise phone system?” on a daily basis. In this blog we will help you understand each solution, without getting into the technical minutia. We will also help you understand how it boils down to a question of company culture and partnership.

What is On-Premise Phone System?

On-Premise phone system is what some will refer to as a PBX or simply a phone system. Not to get too technical, an on-premise system is when your phone system is a physical device either owned or leased by the user. These systems can be on premise VoIP or digital. With on premise VoIP you will have dial tone from a traditional teleco, cable provider, or SIP trunk provider. This dial tone will come directly into your location and connect into the phone system. With on-premise the end user will have a server, on their site or data center, and the end user is responsible for the upgrades, maintenance, and/or expansion of the system. Typically the end user will partner with a provider for ongoing support or rely on their IT professionals.

What is a Hosted Phone System?

Hosted phone system or virtual phone system is a cloud based phone system. The only hardware onsite are the physical phones and a network PoE switch. The hosted phone system is traditionally a large phone system in a data center which is segmented into smaller systems for the subscribers. The end user location is connected to the virtual phone system via the internet. The dial tone is provided by the hosting company and directed over the internet as well.

But, Aren’t Hosted Phone Systems the Latest and Greatest?

This is a question we hear often. While technology purists will tell you “yes” and spout details about how it works, that’s deeper than this discussion. Conceptually, virtual phone systems are not a new idea. When you first started in the corporate world, or some of you may still be using a phone that looks like this…

old phone

If I told you this phone was an endpoint on a virtual phone system you would probably call me crazy. However, remember the term Centrex or CentraNet? Take a look at these two diagrams…

cloud image

Look similar?

So our graphic abilities have gotten better, but the concept of a virtual phone system is the same. Taylored Systems has been in the telecom arena for 33 years. Let us be your experts, visit our site www.taylored.com to learn more or contact us directly at sales@taylored.com.

Ok, but Which One is the Best Use of My Money?

This question is where the buying culture of your organization comes into play. 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 labor 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 (this can be made into an operational expense by leasing or borrowing money) because you are buying the phones, the switch, the server, and the licensing. However your on-going costs can be mitigated by only paying a monthly fee for the dial tone.

A good telecom partner should be able to provide you with numbers for both solutions and provide you an analysis for Total Cost of Ownership. This will let you see where your monthly expense on a hosted solution will meet the upfront cost of an on-premise system. It’s then up to your organization to determine if the ROI is acceptable.

In talking with Brian Peters, CIO of Cardon & Associates, he explained to me that it is about how your company views technology purchases and where your money comes from. Cardon & Associates are owners and operators of multiple senior living communities in Indiana. Cardon is purchasing premise based phone systems for each community as it is built, rather than cloud phone systems. With this approach it aligns with their culture to incorporate the phone system investment into their construction budget and be done with it. Sure there are arguments for both sides, but again what is the culture of your organization? There is no right or wrong answer. Go to www.taylored.com to gain more info and set up a discussion with our experts.

Am I Set Up for Either Solution?

The existing infrastructure of your network is important when looking at any voice product that will interface with your data network. With a hosted solution we need to confirm you have good, stable bandwidth. It’s not just the bandwidth that plays a part; we also need to make sure you receive consistent low latency. In a premise based phone system scenario you have to make sure your dial tone provider is capable of providing the correct dial tone technology. Also you want to confirm the dial tone provider is certified by the on-premise phone system manufacturer. Let them do the testing. There is no need for you to be a guinea pig. Internally, any type of IP voice will require a Cat5e cable or higher for a physical phone. It is my suggestion to plug any phone devices into a PoE switch. Keep in mind you are installing a server with IP devices. Treat these items just as you would a computer or a data server.

But, How Do I Keep From Becoming Antiquated or Painted in a Corner?

Short answer: licensing and software. In the world of IP voice, gone are the days of carded systems. In both the hosted and on-premise IP world the systems can scale via licensing. Most manufacturers will provide a software subscription for on-premise solutions. This allows you to upgrade to the newest software release, complete with additional features and patches, as it is available. Think of it as a cell phone. You may have a two year old phone, but it’s running the newest OS. If you have a seasonal business, one benefit to a hosted solution is the ability to buy licenses on a month-to-month basis. However, in the on-premise world, most license packages are bundled so you may receive additional licenses at the time of purchase. It is best to discuss this with your trusted advisor to make sure you are making the correct decision. Again software also comes into play when discussing maintaining the system. The end user or the end user’s partner will have the ability to simply add and remove users from a GUI interface. This can be done on-site or can be done remotely. This saves on the cost of rolling a truck to make changes. It also makes it easier for a company to manage the system themselves and only rely on their partner for help desk support. If your business needs change and you need to reduce, hosted could be the better option. You will be subject to your initial agreement, but once you have retired the commitment you can scale the licensing back to where you need it. This would reduce your monthly expense.

What Is Quality of Service, and Why Do I Care About It?

Quality of Service is the most important piece when discussing Voice over IP technology. Most hosted providers offer a “Bring Your Own Bandwidth” solution. This means the 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. With the public internet, we lose the ability to provide Quality of Service (QoS). QoS is what allows the data network to know that voice traffic is to travel between Location A and Location B as it was sent. Voice is real-time. Any interruption in the voice traffic can result in pack loss, jitter, and poor call quality. This is the big question with hosted vs. on premise phone system. As Brian Peters said, it’s about culture. It’s also about image. Companies spend money to have an up-to-date website, they market, they spend money on events to promote their business, they spend months designing logos and color schemes, they meticulously adjust email signatures. All of this is great because you get the phone to ring. If a prospect is calling into your organization, or a business partner, and they cannot make out what you are saying or you have to ask them to hang up so you can call them back, what does that do to the image you are building? Some companies can deal with quality issues. Some cannot.

Here are some tips:

  • Look inside your business, what can you afford?
  • What hiccups can you accept?
  • Now, where do you want to invest your money?
  • Talk to your telecom partner.
  • Look at both solutions.
  • Come up with a backup plan.
  • Embrace technology, but understand any downfalls that may come about.
  • Make sure your partner will be able to walk you through and provide the best solution for your business, not just the best solution because they only have one.

One of the most important pieces when making a technology investment decision is who our partner is, will they be here 10 years down the road, and are they diverse enough to change with the technology. Too many providers are out there selling the latest and greatest looking for a quick deal and to move on to the next one.

Talk with Taylored Systems, use our 33 years of experience to help you understand all of this and what is best for your business. Contact us via www.taylored.com or email us directly at sales@taylored.com.