How Does a Modern Telephone Exchange Work?

Modern telephone exchange

We explain the different kinds of modern telephone exchanges, as well as what they do and how they do it. We also examine how necessary they are for businesses today…  

Modern telephone exchanges automatically route phone calls, ensuring that everyone who places a landline call is quickly connected to the right household or company phone.

When it comes to connecting calls through local exchanges and, in the case of international calls, through long distance carriers, telephone exchanges have come a long way over the last century. Human operators no longer need to sit at switchboards, manually connecting wires. Now, everything is automated.

On this page, we explain exactly how these modern systems work, as well as exploring the different kinds of modern telephone exchanges, and answering the question of whether or not your business needs to use one. Let’s dial in.

What Is a Modern Telephone Exchange?

In short, telephone exchanges are responsible for routing phone calls, ensuring that callers are instantly connected with their intended callees.

When we talk about “modern” telephone exchanges, we’re referring to the exchange system we currently use, which is fully automated and digital.

By comparison, when the first Canadian telephone exchanges opened in the 1880s, they were staffed by human operators, who’d manually connect calls between households by connecting wires to different jacks on a switchboard. Today, there’s a lot less human involvement, and calls are connected much more rapidly.

That said, the system we use now was implemented decades ago, and it’s the backbone of the ever-antiquating landline phone network – so we’ll let you decide how modern it really is (and we’ll talk about VoIP, a truly modern telephony technology, closer to the end of this article).

How Does a Modern Telephone Exchange Work?

The public telephone exchange system comes into play when you use your landline phone to make a call. In other words, it connects calls across the public switched telephone network (PSTN). You can use the public exchange to make calls to your neighbour, someone on the other side of Canada, or someone in a different country altogether.

For example, say you’re sitting in your office in Ottawa, and you want to call a client who’s based in Calgary. You pick up your landline phone and dial their number. This is what happens (in simple terms):

  1. Your phone call travels via a copper or fibre optic line (depending on which is in your area) from your office to your local telephone exchange.
  2. Your local exchange routes your call to your client’s local exchange in Calgary.
  3. Your client’s local exchange routes the call to your client’s phone, which starts ringing.

Of course, all this happens in the moments between you pressing ‘call’ and your client’s phone starting to ring. From then, the exchange system maintains the connection until one of you hangs up.

Now, say you want to call a client who’s based in London, UK. International calls follow a similar process, but with your local exchange routing the call via long distance carriers to your client’s local exchange.

What Are the Different Kinds of Telephone Exchange?

Up until now, we’ve primarily discussed the public telephone exchange system. But that’s only one kind of telephone exchange – the other is a private telephone exchange system. Let’s compare the two.

1. The public telephone exchange system

As we’ve explained, this system routes landline phone calls across the PSTN – in other words, the world’s traditional network of phone lines. It ensures that the calls you make are connected to the right recipient.

2. Private telephone exchange systems

A private telephone exchange system, also known as a private branch exchange (PBX), is essentially a business’s internal phone network.

A business with its own private exchange will benefit from free internal phone calls. Each phone, employee, or team will be given their own extension number, which other employees can use to contact the coworker they need to speak to. These calls are free, because they’re routed via a private network, instead of the PSTN.

Of course, private exchanges can also route the external phone calls that your business makes, so having one doesn’t limit your team to internal calls.

There are two different kinds of private exchange systems to be aware of:

  • Traditional/analog PBX: This system makes and accepts phone calls via the landline network. It requires a PBX board or box that’s connected to a local exchange with copper wiring.
  • IP PBX: This system makes and accepts phone calls over the internet. In other words, it’s a kind of VoIP system. It’s largely software-based, and can integrate with the internet network you’re already using. It can still make external calls to landline phones.

Does My Business Need to Use a Telephone Exchange?

If your business still makes landline phone calls, then yes, it will make use of the public telephone exchange system. All you need to do is pay for those phone calls. It could also benefit you to install a private exchange, if you have enough team members to justify your own internal network.

But really, the question to ask is this: Does my business still need to be making landline phone calls? And the answer is no, it doesn’t. For a start, we know that landline use is steeply declining in favour of cell phones.

But, as a far more important point, we also know that VoIP phone systems, which make and take calls via the internet instead of the PSTN, come with a variety of benefits that landline phone systems simply can’t match.

Such benefits include free local and long distance calls, sophisticated call features, and the flexibility of being able to access and use the system anywhere, from any device. Plus, you can still use a VoIP phone to call someone who only has a landline, so don’t worry about limiting your business’s accessibility.

It’s also worth noting that most modern VoIP systems now come with private telephone exchange features, so you’ll still be able to benefit from your own internal company network.

Written by:
Julia Watts author headshot photo
Specialising in business software, Julia writes jargon-busting guides about VoIP, fleet management, dash cams, fuel cards, and more. Having spent almost a decade writing for entrepreneurs and reviewing business solutions, she loves helping exciting ventures – big or small – to flourish.
Reviewed by:
James thinks all businesses can improve if they use the right technology. At Expert Market, he utilises his 4+ years experience as a researcher to offer specialised advice on a wide range of categories from CRM to Fleet Management.