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Call us for a free FastStart Consultation: +35 376 680 1856


by Daniel Harris,
Market Research Associate
Last Updated: July 13, 2016

The term “PBX,” for private branch exchange, is in most cases simply a synonym for business phone system.

Internet Protocol PBXes, or IP PBXes, are phone systems that connect calls via the internet rather than the traditional phone network.

We’ll explain the core features and benefits of IP PBX systems. We’ll also take a look at some of the key factors that businesses need to consider when investing in a new phone system.

Here's what we'll cover:

  • What Is a PBX and an IP PBX?
  • IP PBX
  • Which Businesses Need Them?
  • Key Considerations

What Is a PBX and an IP PBX?

The term PBX itself is a relic from the early-20th Century, as we explain in our extended definition.


Switchboard Operators, public domain image

Broadly speaking, a PBX’s function is to unite all the separate phone extensions that a business uses so they can function together as one system. Specifically, PBXs:

  1. Route incoming calls to whichever extension a caller chooses.
  2. Distribute calls automatically to internal extensions based on pre-set rules.
  3. Connect internal extensions to outside lines when employees place a call.
  4. Connect calls internally between the business’s extensions.

PBXs have been performing these same tasks for decades. As the internet increasingly takes over the function of the traditional phone network, however, the capabilities and features of PBXs have also evolved.


VoIP, or the Voice over Internet Protocol, has brought many changes to all aspects of business telephony—PBXs included. With VoIP, it’s now possible to send calls over an internet connection, as opposed to paying for traditional business phone service.

In order to reap the benefits of VoIP, you need an IP PBX rather than a traditional PBX, as an IP PBX system can connect directly to the internet. Older PBX systems, on the other hand, connect to analog or digital phone lines.

There are devices known as gateways that allow you to use VoIP service with an older PBX system. If you’re replacing your system, however, it makes much more sense to simply invest in an IP PBX.

IP PBXs exist in several very different forms. Although they all perform similar functions, there is no strict definition of the term. An IP PBX can refer to:

Hardware-based on-premise systems Specific on-site hardware devices that look much like typical rack-mounted servers.
Software-based on-premise systems PBX software running on a computer outfitted with phone connections.
Virtualized on-premise systems “Virtual machines” installed on commodity hardware running a virtualization platform such as VMware.
Cloud-based systems Systems hosted by a VoIP provider in the provider’s data center rather than a server on your business’s premises, delivered as a service over your Internet connection.

Which Businesses Need Them?

Traditionally, PBXs were very expensive to purchase and maintain, and they were only used by relatively large businesses. Smaller businesses had alternatives such as Key Systems, which are scaled-down and less automated, but perform similar functions. (With Key Systems, users manually select lines: for example, by pressing "9" for an outside line.)

Now it’s common for businesses with even a few employees to use some sort of IP PBX for their office phone system.

IP PBXs allow incoming calls to be routed and automatically distributed, and allow internal extensions to dial each other and share external lines. They provide the same basic functions as traditional PBXs, and can be useful to businesses of almost any size.

Further, as more businesses seek out the conveniences and cost-savings of VoIP telephony, IP PBXs in one of the forms mentioned above have become an increasingly common choice. Rather than trying to modernize an older PBX so it can work with VoIP calls, it often makes more sense to upgrade the whole system. Upgrading also gives buyers a chance to bring in new features which may have previously been unavailable.

Key Considerations

Hosted or on-premise. This is probably the most critical decision to make. Companies should look at both options. On-premise systems will typically have higher initial costs, and may also require periodic system maintenance. Hosted PBXs will cost less up front, and will be managed by the provider, but have higher recurring costs. The total cost of ownership for all potential systems should be compared.

Call capacity. PBXs can only handle a limited number of concurrent calls and a limited number of total extensions or “registrations.” (Each VoIP phone connected to the IP PBX requires a single registration.) Assess how many total connections you’ll need, count one for each hardphone and softphone you plan to connect, as well as any devices such as FAX machines that may also be connected via your existing phone service provider, and estimate how many calls your employees will be making and receiving simultaneously when you’re at peak call volume.

Unified communications. This term refers to a range of features that involve communicating across platforms and between different mediums. A common example of this is visual voicemail: a feature that automatically transcribes voicemail messages and emails the transcript to the recipient. Many IP PBXs have UC functions included.

Security. VoIP calls have special network requirements and they often don’t work with well with standard office firewalls. To avoid problems, ensure that your existing firewall is compatible with SIP and VoIP traffic. An alternative is to get an IP PBX that includes a built-in firewall, as many do. Many also include VPN gateways to connect with a corporate Virtual Private Network.

Finally, you can use a device known as a Session Border Controller (SBC), which provides additional security specifically for VoIP systems by policing the “pinholes” that you need to open in your firewall for your VoIP calls.

Auto attendant. This is the automated answering system that greets inbound calls, presents pre-recorded information and gives callers a list of extension options from which to choose. Most IP PBXs include auto attendants, but the level of functionality supported by different systems differs. Advanced IVR systems, the voice menus that allow callers to complete actions such as checking account balances over the phone, are generally only found in call center suites.

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