in Telephone System

What are the advantages of using a cloud vs. on-site (premise) VoIP solution?

Companies that sell cloud-based (“hosted PBX”) or premise-based VoIP telephone systems (“PBXs”) in Los Angeles typically treat choosing the other competing solution as a sign of mental illness. I see a lot of people spouting talking points and strong convictions, getting pretty fired up over what business communications tools one should use. Of course, us adults know that the answer to most complicated things is, “It depends.” I will hopefully be able to illustrate what that means in a more helpful way below.

Startup telephone system, 1-10 employees

If you are a young company with a couple years of scant credit history and perhaps some cash flow issues, you are going to have to figure out how to avoid paying for phone service. Now, your first step starting out should be Google Voice and then forward that number to your cell phone or cell phones. Plus, Google Hangouts integration allows for amazing collaboration between team members. Services like and are great for hosting telephone conference calls at no charge.

However, as much as I love Google Voice, at some point you might want to transfer calls, provide a professional phone tree (automated attendant), enjoy more sophisticated call routing by department, provide individual voicemails, provide company directories, and get some reporting on your call activity. Your first choice is between buying a phone system and installing it, or signing up for a hosted service.

For companies just starting out, I recommend a hosted service. If you were to use Extenda’s hosted service, you pay say $25 per user per month and pay for the cost of the phones and power supplies you need. Just use your internet connection for telephone service – the per month fee covers unlimited US calling. You get all of the features of a very expensive telephone system and some of the advantages of services like Google Voice, such as forwarding to cell phones. Best of all, just rent the phones you need – not everyone needs a phone when you are starting out, and you certainly can live without conveniences like a break room or lobby phone when you are worried about your burn rate.

This saves you the time and trouble of another bill (phone company lines) and also from a pretty big capital expense (buying the phone system). What companies find is that even a used telephone system will have one expensive component that you won’t want to live without: the voicemail system. This part alone can drive up the cost of your system by a thousand dollars or more.

One advantage of hosted phone systems that I can’t praise enough with startups is that you can put all of your staff on a single phone system, all over the world. Hosted phone systems let you hire from all over the country and sound like you are just down the hallway. This allows for startups to take advantage of non-traditional hiring arrangements and work-from-home perks.

The biggest ‘gotcha’ with startups and hosted phone service is cabling. IP telephones work best with a wired connection to a switch that connects to the internet. If you are in a wireless environment, mentally add in the cost of ethernet cables to all the places you want a phone or devices like the AirPort Express that can provide a wired connection, wirelessly.

Small business telephone system, 11-20 employees

Many small businesses continue to choose hosted systems. They are easier to maintain – you just call your provider for assistance, and typically the warranty covers you so long as you are signed up for the service. Upgrades and new features are rolled out with regularity, and you really don’t have to invest much time in the telephone system. There are few surprises other than the occasional outage due to your internet connection going down or your hosted phone provider having a hiccup, either of which cut off your local phones. The good news is that in an internet outage, your hosted phone system is still up and running, taking calls and messages, and forwarding calls out to cell phones.

Small businesses however typically have better credit and longer credit histories than startups, so can easily lease on-premise equipment. Leasing over five years is often far less expensive than renting, as renting includes the phone service. Copper wire phone service itself known as POTS (Plain Old Telephone Service) lines from AT&T, Verizon, Time Warner Cable or Charter in Los Angeles, Ventura, Orange County, Riverside and San Bernardino will run you anywhere from $20 to $50 per line. Now, you only need about one line for every four users unless you have a contact center of some sort, but it adds up to make hosted phone systems just as cost-effective, if not more so, even when the on-premise equipment is leased over five years.

What we recommend is that small businesses instead get a second, backup internet connection versus going with old school POTS lines. For phone service, get what are known as SIP trunks – these can be as cheap as $5 per line, so you can save as much as 90% over traditional phone lines. With two internet connections (ideally one from a phone company, and one from a cable company, so they are on different physical networks in the ground) going into a router or firewall that supports ‘Dual WAN’ connections, your calls and phone system are now pretty bullet proof. Your on-site phone system can send calls through whichever connection is up and running, and you aren’t dipping to much into your internet bandwidth. Just remember that outside calls take 100kbps up- and downstream.

In some isolated pockets of the greater Los Angeles region, internet bandwidth is limited. While this will surely improve over time, if your area has bad internet connectivity, better to overpay for phone lines than make your customers hate you and damage your image with awful sounding voice quality.

Medium sized telephone system, 21-50 users

At this stage in the game, your company can afford a nice phone system without losing too much sleep, and you probably have a pretty decent internet connection or two. Most importantly, you have a couple of people that talk on the phone quite a bit as part of their job. On the other hand, the operational expense of 25 rented cloud telephones can be more than offset by the time saved on not futzing with a complicated telephone system (though many phone systems such as Mitel and Zultys systems are not very complicated at all).

At this stage, a PRI circuit (23-pack of digital phone lines) or 20-odd SIP trunks will be very inexpensive, so the price of hosted is far less compelling, and perhaps much more expensive, even figuring in the cost of leasing equipment. By way of example, a $10,000 system will be about $250 a month leased, and a PRI is $300 a month, while 25 user seats at $25/mo each will cost $625. A PRI may include bundled minutes to be, effectively, toll-free depending on your call volume, just like a good hosted service. At this size, features and functions matter more in deciding to move to a cloud-based phone system anyway.

Real talk: if your 50-person company is making critical communications decisions over $100 a month deltas, consider buying a used phone system, get some $5/mo SIP trunks, and a $1000 SIP-to-Analog gateway to run this as cheap as possible. The $1000 voicemail spread over 50 users is not as painful as when you have 4 users.

Similarly, if your building has terrible cabling and you want phones everywhere, we can convert old Cat3 telephone cables to support IP, because running network cables can be cost prohibitive if you have not budgeted for it.

An important edge case regards contact center equipment and software. Owned contact center software is very expensive. Hosting will often provide amazing features at a fraction of the cost – with Zultys, for $50 per seat instead of $25 you get call recording, real time reporting and automatic call distribution with callback in queue. These features would cost tens of thousands of dollars if you were to buy them from companies like Interactive Intelligence, Avaya, Shoretel, Toshiba, NEC and Cisco.

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