How To: Buy a Hosted PBX Phone System

Selecting a phone system may be the most important technology decision most small businesses make; choosing the wrong one can spell disaster. One relatively new and increasingly popular option, using a hosted PBX (Private Branch eXchange) solution, offers a number of benefits and can also mitigate some of those risks.

With a hosted PBX you don’t have to invest in an on-premise phone system, although you may have to buy new IP (Internet protocol) phone sets. That said, you still need to take great care when selecting a hosted service provider.

The PBX, an enterprise-grade IP phone switch, sits at the service provider’s data center, connected to your office either by a dedicated data link, typically a T-1 line, or over a high-speed Internet connection.

You get all the features of a big-company PBX – voice mail, auto attendant, sophisticated call routing, find-me-follow-me features, unified communications (presence, voice mail delivered as e-mail, etc.) – without having to invest tens or hundreds of thousands of dollars in a system of your own. 

Instead, you pay the service provider a monthly fee per extension, typically ranging from $30 to $70.

The fact that capital costs are greatly reduced, an attraction on its own for many companies, also means that if you choose poorly for whatever reason, it will be somewhat easier to recover from the error – you can simply move to a different service provider.

Still, it’s obviously better to do the due diligence and make the right decision from the start. Here’s how to go about it.

Is Hosted PBX Right for You?

First question to ask: is a hosted solution really right for my company?

David Cole, president of Data Management Services Inc., a New Jersey-based company that provides telecom consulting and also resells several hosted PBX solutions, believes companies with fewer than 50 employees have most to gain.

Smaller companies, Cole pointed out, are less likely to have in-house IT people able to make good decisions about buying a system and then managing it after it’s installed.

“With [a hosted solution],” he said, “you get all the functionality of a PBX that might be implemented by an enterprise, but you don’t have any of the maintenance headaches, or any of the overhead of trying to program it.”

Phone Service Anywhere

Companies with employees that travel a lot or work from home or satellite offices also benefit more from using a hosted PBX because they can use all the features of the PBX anywhere they have access to the Internet.

You can plug an IP phone into a network router or use a softphone – a piece of software running on an Internet-connected computer with a telephone headset – and access the hosted system just as if you were in the office.

Calls to your company’s main number or your direct in-dial (DID) number ring at the phone wherever you’re connected. You can call colleagues using four-digit dialing and transfer calls to other extensions – from anywhere you’re connected.

And when you make a call from a remote location, it appears to the party at the other end as if you’re calling from the office. “I’ve found that small business owners especially like the idea of being available without being in their offices,” Cole said.

It’s also easier for highly distributed companies to manage a hosted phone system because they can control all the user-configurable features using a simple browser-based interface from an Internet-connected computer anywhere.

Companies with multiple offices stand to benefit more because with most hosted PBX solutions, calling between offices, even if they’re widely separated, is charged as local calls, not long distance. This can be a significant saving for some firms.

Making the Business Case

Ultimately, you need to compare the savings in capital costs and, possibly, long distance calling, against the long-term costs of using a hosted solution – because you never stop paying for a hosted PBX service.

How that calculation works out depends on a few variables – including how much intra-company long distance calling you expect to do. For example, how long would you expect to keep a phone system if you purchased one?

Some companies amortize such purchases over five years. Others, especially those that anticipate needing to trade up to a bigger system or upgrade to a more feature-rich system, might amortize over three years.

How much would you pay for management and maintenance if you bought a system and managed it at your own facility? Many small firms have to hire a consultant to do regular maintenance and provide support. So you also have to factor in the cost of outsourced IT help, or of hiring IT staff.

Not for Everyone

Some companies, Cole said, probably shouldn’t go with a hosted IP solution, however compelling the economic business case. IP voice, he noted, is still “new technology,” and compared to traditional telephony, it’s still marginally less reliable and harder to troubleshoot. “You just can’t guarantee it will always be up and running and perfect.”

Equipment vendors who have been selling IP phone systems for well over a decade and service providers that offer aggressive service level agreements (SLAs) guaranteeing uptime might dispute this, but Cole’s point is more about buyer perceptions.

Companies that view telephony as mission critical and have a low threshold for even momentary disruptions to service or occasional problems with voice quality probably should think twice about going with IP voice at all, and especially a hosted solution.

“With some customers, I just don’t feel right recommending VoIP,” Cole admitted.

Choosing Wisely

Next question: which service provider? Most phone companies and many small start-ups now offer hosted PBX solutions, so there are lots of options, including national, regional and local players.

In terms of PBX features, service providers vary little, Cole said. This is because almost all of them use server software from one of two main competitors – Broadsoft Inc. and Sylantro Systems Corp.

Some may offer nice-to-have extras, such as the ability to integrate the phone system with Microsoft Office Outlook – so that you can receive voice mails as audio attachments to e-mails in Outlook, for example.

Others may configure some features slightly differently or provide more or fewer configuration options, Cole said. But all provide the same basic phone functions. One important differentiator for service providers is how the company connects – or is willing to connect – your office to its data center.

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