What Is a Hosted Phone System?

Finger pressing button that reads 'Cloud telephony'

A hosted phone system is a phone system that exists away from your business premises, and is maintained and managed by your system provider instead of your own team.

That’s the bare bones of it, but there’s plenty more to know about hosted phone systems: how they work, how they interplay with VoIP technology, how much they cost, and what their benefits and weaknesses are.

In this guide, we’ll take you through all this information plainly, helping you to understand this telephony tech, and decide whether a hosted phone system is right for your team or not.

What Is a Hosted Phone System?

A hosted phone system is built and maintained by your system provider, instead of by you. The system will live on a server at a data centre that’s owned and managed by your provider, with the software sitting in the cloud.

This means that, even though the system lives elsewhere, you’ll still be able to use it on your workplace’s phones and computers, as well as your personal devices.

The alternative to a hosted phone system is an on-premise phone system. This is when you host and manage your phone system yourself, on your own servers, on your own business premises.

What’s the Difference Between a Hosted Phone System and VoIP?

If you’ve ever found yourself confused about the difference between various kinds of phone systems, then you’re definitely not alone. More so than anything else, you’ve probably heard about VoIP phone systems and the merits they’re famous for.

Let’s start by defining VoIP: VoIP stands for voice over internet protocol, and it’s a technology that transmits phone calls over the internet, instead of the traditional PSTN (public switched telephone network, or in other words, the landline).

Rather than something separate, a hosted phone system is actually a type of VoIP system. That’s because all hosted phone systems currently use the internet, instead of the PSTN, to carry calls. An example is Google Voice, which we've reviewed recently.

But this relationship doesn’t go two ways. Hosted phone systems are always VoIP (you might also see them referred to as IP, which means the same thing), but VoIP phone systems are not always hosted.

Instead, some businesses choose to host their VoIP system themselves, on their own premises. That’s not the kind of system we’re discussing today, but we will compare hosted solutions to on-premise systems as we go on.

How Much Do Hosted Phone Systems Cost?

To pay for a hosted phone system, you’ll pay a monthly subscription fee to your phone system provider. This fee will normally be charged per person who uses the system, so the larger your team, the more expensive your system is likely to be. That said, some providers offer discounted rates to bigger businesses.

Usually, hosted phone system providers don’t charge any setup or installation fees – so your main consideration is going to be that monthly subscription cost.

You’ll also need to think about the equipment you want your team to use. Do you want everyone to have their own IP phone (that is, a desk phone that’s compatible with VoIP systems)? Or are you planning to enact a BYOD (bring your own device) policy? As we’ve mentioned, hosted phone systems can be accessed through the cloud using any internet-connected cell phone, tablet, or computer, so desk phones aren’t an absolute necessity.

All that clarified, let’s take a look at the likely costs:

Hosted VoIP system subscription$15–$60 per user, per month
IP desk phones$100–$500 upfront, per phone

As you can see, how much your hosted phone system subscription costs can vary by a lot. This will depend on whether you opt for a super simple system with basic functionality, or a more advanced system with sophisticated features, such as call analytics and UC (unified communications) capabilities. Generally, most small businesses should be able to get something suitable for between $20 and $40 per user, per month.

Similarly, the more technologically advanced your IP phones, the more expensive they’ll be.

How Does This Compare to On-Premise Phone System Costs?

Running an on-premise phone system involves setting up your own server and hardware and paying for software licenses. These costs can run into the thousands – but once you’ve paid them, the only ongoing cost you’ll need to consider is that of maintenance. In other words, paying someone who knows what they’re doing to update and modify your system when necessary.

Because you’ll continue to make monthly payments for as long as you use it, in the long run you could end up paying more for a hosted phone system than the amount you’d spend setting up an on-premise system. But hosted phone systems come with a range of benefits that we think make that potential extra cost worthwhile.

What Are the Pros and Cons of a Hosted Phone System?

The Key Benefits:

  • The upkeep is done for you. Your phone system provider will look after the system, performing routine maintenance and server and application upgrades in the background, and troubleshooting when something goes wrong, so you don’t have to worry about it. Disaster recovery is also inbuilt. This will all be covered by your monthly subscription, so maintenance won’t cost you anything extra.
  • Setup is super easy. Usually, it’s just a case of downloading and signing into the system software on your devices. Plus, you can usually buy IP phones from your phone system provider – if you do this, they’ll be ready out of the box. Just plug them in and go!
  • You can use the system anywhere. The ability to access your hosted system through the cloud means you can use it on any device, anywhere with an internet connection, making remote working much more streamlined. Many hosted phone systems come with a softphone app that you can download onto your own cell phone.
  • Scaling is simple. When new people join your team, your provider should make it easy for them to join your system as users – all you need to think about is getting them IP phones to plug in (if they need them). If you open a new premises in another location, you can set it up with the same system, getting rid of inter-office call charges.
  • You’ll get excellent features. Hosted phone systems tend to come with great features, including free international calls, customizable auto attendants and virtual receptionists, and UC capabilities like video conferencing and instant messaging. Just make sure you opt for a provider and package that provides everything you need.

The Drawbacks to Be Aware of:

  • You’ll be heavily reliant on your internet connection. Because you’ll be accessing your system through the cloud, and your phone calls and conference comms will be carried over the internet, you will be reliant on working wifi. If your internet connection suddenly drops, so will your phone system, so it could be wise to have a backup network ready and waiting.
  • Customizability is limited. If you chose an on-premise system, you’d be able to customize it yourself, configuring the features you want to your specifications (this, of course, does take some technical know-how). But hosted phone systems tend to come with the features they come with, and that’s that. Of course, this won’t be a huge problem if you’re able to find a system package that comes with all the features your team needs.

Expert Verdict

In summary, hosted phone systems are low-maintenance and usually very affordable. For the majority of businesses, we'd recommend them over on-premise systems, because they're much easier to set up and run. You're also likely to find a hosted phone system that offers all the features your team needs to collaborate and communicate effectively, as they tend to be pretty feature-rich.

However, if you want lots of customizability and full control over your phone system, an on-premise solution would be the better call – so long as you've got the budget and the expertise to set it up properly, and keep it maintained and updated.

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.