What Is Hosted VoIP?

Telephone Systems Webform

Our site is reader-supported – by clicking our links, we can match you with a potential supplier, and we may earn a small commission for this referral.

Switching to a Voice over Internet Protocol (VoIP) phone system can transform your team’s communication strategy, offering flexibility and efficiency previously unattainable with traditional telephony.

Unlike conventional systems, VoIP phone systems use the internet to make and receive calls, as well as provide additional features that can significantly benefit your team.

One of the most popular types of VoIP service is hosted VoIP, where the infrastructure is handled off-site by a third-party company. In this article, we’ll focus specifically on these hosted VoIP solutions, explaining what they are, how they work, and why they might be the ideal choice for your team.

What Is Hosted VoIP?

Hosted VoIP is a modern telecommunication solution where voice calls are made using the internet rather than traditional telephone lines.
The ‘hosted’ part means the VoIP service, including all necessary hardware and software, is managed off-site by a third-party provider. This setup allows your team to make and receive calls via the internet without the need for maintaining the physical infrastructure typically associated with a traditional phone system.

One of the key terms associated with hosted VoIP is ‘cloud-based PBX’. PBX, or Private Branch Exchange, is a private telephone network used within a company, like a switchboard. When it’s cloud-based or hosted, it means the PBX system is managed on servers by the VoIP provider and accessed over the internet.

Read our comparison of telephone switchboards.

Hosted VoIP systems come with a range of features that can be tailored to your team’s needs, such as voicemail to email, call forwarding, auto-attendant, and video conferencing capabilities.

These systems are internet-based, so your team can use a variety of devices to make and receive calls, including desktop computers, laptops, tablets, and smartphones, enabling unparalleled mobility and flexibility in how and where work gets done.

How Does Hosted VoIP Work?

VoIP operates on a straightforward yet innovative principle, transforming the way teams communicate. At its core, this technology converts voice signals into digital data packets and transmits them over the internet—a process that might seem complex but is surprisingly efficient and offers a high-quality communication experience.

Here’s a step-by-step breakdown of how hosted VoIP works:

  • Voice conversion: When you speak into a VoIP-enabled device, such as a headset or a VoIP phone, the system converts your voice into digital data packets. This is achieved through a piece of technology known as a codec. The codec compresses your voice signals to make them suitable for transmission over the internet.
  • Data transmission: Once your voice is converted to digital packets, these packets are sent via the internet to the recipient. VoIP can route these packets through the most efficient path available, ensuring better call quality and reliability.
  • Receiving end conversion: At the destination, these data packets are received by the recipient’s VoIP device, which uses a codec to decompress the data and convert it back into voice signals. This allows the recipient to hear the sender’s voice clearly.

With hosted VoIP, this entire process is overseen and managed by the hosted VoIP provider’s servers. These servers are responsible for call routing, managing features such as voicemail and call forwarding, and ensuring all calls reach their destination correctly.

The provider’s infrastructure also handles the conversion between VoIP calls and traditional telephone network calls if necessary.

Hosted VoIP vs On-Premises VoIP

Choosing between hosted and on-premises VoIP begins by understanding the chief pros and cons of each:

Initial Setup and Investment

  • Hosted VoIP: When setting up VoIP, there’s no need to purchase or maintain expensive hardware since the provider manages the infrastructure and services. The primary expense is often limited to VoIP-enabled handsets and a stable internet connection.
  • On-premises VoIP: Purchasing the necessary hardware, including servers and specialised equipment, plus setting up the system, incurs higher upfront costs. However, for organisations that need or prefer to have full control over their telephony system, this might be a worthwhile investment.

Maintenance and Upgrades

  • Hosted VoIP: The responsibility of maintenance, upgrades, and security is shifted to the service provider when you use hosted VoIP. This reduces the workload on your IT team and ensures your system is always up-to-date with the latest features and security patches.
  • On-premises VoIP: If you opt for on-premises VoIP, the onus of maintaining and upgrading the system is placed on your team. While this offers more control over the timing and nature of updates, it requires dedicated resources and potentially significant additional costs for upgrades and maintenance.

Read more about VoIP security in our guide.


  • Hosted VoIP: You get unparalleled scalability with hosted VoIP, allowing you to easily add or remove users as your team changes. This flexibility is ideal for growing businesses or those with fluctuating needs, as it can be adjusted with minimal effort and cost.
  • On-premises VoIP: An on-premises setup can be scalable, but adjusting the capacity often requires additional hardware or software licences. While it offers a high degree of customisation, scaling up or down can be more cumbersome and costly than hosted solutions.

Control and Customisation

  • Hosted VoIP: Despite offering a range of features and options, the degree of customisation and control can sometimes be limited with hosted VoIP. The provider manages the system, which can restrict how much you can tailor it to fit unique requirements.
  • On-premises VoIP: A higher level of control and customisation allows your business to tailor the system to your specific needs. This includes integrating with existing enterprise systems, customising call routing rules, and more.

Reliability and Performance

With the right setup, both hosted and on-premises VoIP systems can offer high reliability and performance. Hosted VoIP benefits from the provider’s dedicated resources and infrastructure, which often includes duplicate systems and backups. On-premises VoIP performance heavily depends on the in-house IT team’s ability to maintain and manage the system effectively.

Is Hosted VoIP Right for Your Business?

VoIP has many benefits, and hosted VoIP is particularly good for several types of business:

Small- To Medium-Sized Enterprises (SMEs)

For SMEs, where budget and resources are often more limited, hosted VoIP is an excellent choice. The lower upfront investment and reduced ongoing maintenance costs allow these businesses to leverage advanced telephony features without the financial strain associated with on-premises solutions.
As these companies grow, the scalability of hosted VoIP can seamlessly accommodate expanding team sizes and changing needs.

Businesses With Flexible or Remote Workforces

Many businesses now operate with remote teams or offer flexible working arrangements. Hosted VoIP systems excel in these scenarios due to their inherent accessibility.
Employees can connect to the company’s phone system from anywhere with an internet connection, ensuring seamless communication regardless of physical location. This flexibility is invaluable for maintaining productivity and collaboration amongst dispersed teams.

Companies Looking for Ease of Management

Organisations that prefer to focus on their core operations rather than managing IT infrastructure will find hosted VoIP particularly appealing.
Since the service provider handles maintenance, upgrades, and security, your internal IT team can dedicate their expertise to initiatives that drive business growth. This ease of management is a significant advantage for businesses without large IT departments.

Preparing for the 2025 Switch

With the UK’s transition to VoIP by 2025, businesses are encouraged to adopt VoIP solutions sooner rather than later. Hosted VoIP offers a straightforward path to compliance with this upcoming mandate.

The transition can serve as an opportunity to modernise communication systems, improve operational efficiency, and future-proof your business against further technological advancements.


With the 2025 UK mandate on the horizon, now’s the time to evaluate your business’ communication needs. Understanding how hosted VoIP works will give you a good idea of whether it’s right for your business.

Your next step should be to compare the top hosted VoIP providers, examining scalability, cost, and features that align with your operational requirements. Start planning your transition to ensure a smooth, efficient move to hosted VoIP.


What is the difference between cloud VoIP and hosted VoIP?
Cloud VoIP and hosted VoIP often refer to the same concept: a VoIP system managed offsite by a third-party provider. Cloud VoIP emphasises the use of cloud technology for scalability and flexibility, while hosted VoIP focuses on the service being hosted and managed externally.
What is the difference between hosted and non-hosted VoIP?
Hosted VoIP refers to VoIP services managed by an external provider over the internet. Non-hosted VoIP, or on-premises VoIP, means the VoIP system is housed within your business premises, giving you full control but requiring you to handle maintenance and upgrades.
What is self-hosted VoIP?
Self-hosted VoIP is a type of non-hosted VoIP where the business owns and operates its VoIP system. This setup offers maximum control over the telephony environment but requires significant investment in hardware, software, and ongoing maintenance.
Written by:
Eamonn is an experienced B2B writer and content manager, having managed and grown several B2B business blogs in the fitness and hospitality space.