How do Business Phone Systems Work

When you start a business, you need to interact with your customers. To make things easy, you can choose from different types of business phone systems available. These phone systems allow employees to communicate with their customers and among themselves in the best possible way.

Find out about all the different types of business phone systems, how they work and their individual benefits and disadvantages for businesses.


  1. IP-based phone systems for businesses:

With the onset of IP-based phone systems, the legacy PBX phone systems came to an end. This phone system uses the internet to create an effective communication system. Introduced in 1995, these phone systems are even used today. Some manufacturers of IP-based phone systems include Grandstream, Avaya, and Cisco.


How it works

IP networks use the internet to make calls. The technology uses little packets of digital information while sending them over the internet. The data transmission in IP-based phone systems is called packetization. The analog signal is converted to digital by using an IP phone or Analog Telephone Adapter (ATA).

Next, the data gets converted into individual packets and sent over the internet. They have converted again to analog signals. The process is done through encoding. Computers record the audio and compress them into small samples. They are gathered in large groups and collected in data packets. Lastly, they are transmitted over the network.


  • Because the system functions over the internet, wires aren’t required
  • IP-based business phone systems are cheaper
  • These systems are great for multiple calls


  • The entire process depends on the ISP (Internet Service Provider). If anything goes wrong, there are consequences


  1. Hosted business phone systems

With the introduction of IP phone systems, businesses were happy about that. But there was always room for improvement. Businesses wanted to cut down costs while being more efficient. Independent companies cropped up and began to provide communication services to businesses regardless of small or big.


How it works

The term hosted phone systems for business is self-explanatory. A certain service company will host the communication services for your business. An independent company delivers services to businesses. They can use features such as conference calling, call auditing, touchtone menus, voicemail, calling logs, faxing, and many more.

Typically, this type of phone system is run by the internet and the base is located at data centers. Besides, the functionalities of hosted phone systems are quite simple. The phone system is situated in the server data in an off-site location.

All you have to do is subscribe to the provider and access the communication system in exchange for a monthly fee. In your business premise, you need to get the desk phones, connect them, and you are good to go. When connected, the phone system starts functioning automatically.



  • The entire task is outsourced, and businesses don’t have to worry about the maintenance of the phone system
  • An expert team handles the communication network
  • An effective cost-cutting technology


  • Because of security concerns, you have to choose a reliable service provider
  • You have to depend on the hosting company for a smooth communication system


  1. Cloud-based phone system for business

The business phone system that uses cloud-based technology consists of two parts: one part is the PBX, and another is cloud computing. The system is similar to IP telephony, and it is based entirely on functions over the internet. Also, it is referred to as Voice over Internet Protocol or VoIP.


How it works

Cloud-based phone systems are a combination of hosted and IP-based phone systems for businesses. The data in this system is stored either on the internet or in the cloud. You have zero hardware costs on your business premises. Just contact a trustworthy service provider and opt for a subscription plan.

You can use their services with softphones, landlines, VoIP phones, or even mobile phones. It is similar to calling someone on Skype. You use the same means of communication to interact with another person using the same medium. Communication is carried out using the internet.



  • This phone system for business provides scope for scalability. As your business expands, you can add more lines
  • The phone system allows you to use a variety of devices
  • With wireless technology, the phone system offers great scope in terms of portability



  • Switching from an existing phone system might be costly