What Is a Telephone Exchange System, and How Does it Work?

telephone cable wires inside a switchboard connecting to one another

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The ‘Big Switch Off’, now happening in January 2027 instead of December 2025, will mark the end of traditional landlines. The UK’s Public Switched Telephone Network (PSTN) is turning off, ending the era of the public telephone exchange.

Telephone exchanges were founded in physical infrastructure, routing calls through switches and circuits since the dawn of telephone communication in the 1880s and becoming an integral part of the UK’s communication network ever since.

Homes and businesses will soon need to move over to a digital network instead, chiefly using wireless and cloud-based telephone technology like Internet Protocol (IP) and Voice over Internet Protocol (VoIP) phone systems. But first, it’s worth learning more about how we can magically dial a number and talk to someone halfway across the world to begin with. Below we explain exactly what the telephone exchange system actually is, and how it works.

What Is a Telephone Exchange System?

A telephone exchange system acts as an intersection between two phone lines. This is because a direct phone line between two establishments doesn’t technically exist.

Think of it as similar to taking the tube. Sometimes you can’t travel to your destination directly, so instead, you have to switch lines at an intersecting station to reach it. In a nutshell, that’s how an exchange system works.

How Does a Telephone Exchange System Work?

The Public Switched Telephone Network is a wired system through which landline telephone calls are made and received and the circuit is based on successful circuit switching.

To connect one phone to another, a phone call is routed through several switches which operate on local, regional, national or international systems. The connection established between the two phones is referred to as a circuit.

Put simply, a telephone exchange links your line with the receiver’s line to create a circuit – this itself is a connected call.

What Are the Different Types of Telephone Exchange?

There are two types of telephone exchange system – public and private. Conceptually, both do the same thing. The only difference is a public telephone exchange system only serves external communications, while a private telephone exchange system serves internal and external communications.

The Public Telephone Exchange

All lines within a certain area are connected to a local exchange. Your office is connected to a local exchange via a copper or fibre-optic line, depending on what type of line is available.

In basic terms, this is how your phone call travels from your telephone to your receiver’s telephone.

Diagram of Local Telephone Exchange mechanism
Diagram of Local Telephone Exchange mechanism – Source: Expert Market

For international calls, there are few additional stages. Instead of travelling straight from one exchange to another, the call has to travel via a long distance telephone carrier. On a basic level, it looks a bit like this:

Diagram of International Telephone Exchange System
Diagram of International Telephone Exchange System – Source: Expert Market

The Private Telephone Exchange

A private telephone exchange is often referred to as a private branch exchange (PBX). These units allow the internal transfer of calls while providing a limited number of outbound call lines (trunks).

Internal calls can be made from deskphone to deskphone. However one of the biggest benefits of a PBX is transferring one external call to multiple internal numbers. Most PBXs come with an auto-attendant, which allows callers to select which line extension they want to connect to. For a list of the best auto-attendant systems, head to our page.

Types of PBX

There are three varieties of PBX. These are:

  • Traditional PBX (analogue): Only sends and receives phone calls via traditional copper wiring. It acts as an internal exchange, connecting calls within the office and sending calls out to the local exchange.
  • Hosted PBX (digital): Uses the broadband network to send your digital phone call data to an offsite PBX server. Once there, it either continues as digital data to another digital phone system, or it’s repackaged into analogue data for traditional telephone networks.
  • Self-hosted PBX (both): Can connect to both the traditional telephone network (via a SIP trunk) and the digital network. You can choose to make calls over the landline, or the internet, and you have a backup if the phone line or broadband network goes down.
Did You Know?

If you don’t already have a PBX phone system, it may be worth investing in one. 

A hosted PBX can be far more cost-effective than a 2-line or 4-line phone system, as well as being low maintenance – a real win-win.

Read more about PBX Telephone Systems in our full guide.

A Brief History of The UK’s Telephone Exchange System

The founding of the telephone exchange – or the Public Switch Telephone Network (PSTN) – occurred in the late 19th century, with the first exchange opening in London in 1879 by The Telephone Company Ltd. These early exchanges were manual systems where operators connected calls by physically plugging wires in and out of a switchboard.

Soon after, the government stepped in to nationalise telephone communications in 1912 under the Post Office, unifying the technology for the sake of national security and governance, and expanding the network in the process.

Company logo of the National Telephone Company
Company logo of the National Telephone Company - Source: Oosoom at Wikipedia

The remainder of the 20th century saw several innovations in telephone exchange technology, firstly with automatic exchanges in the 1920s. Instead of using manual human labour to route calls, mechanical switching systems automatically connected incoming calls to requested numbers.

Automatic switching was only possible for localised telephone exchange systems. Longer distance, inter-city communication still required manual routing through multiple different telephone exchanges that existed across the country.

That all changed in the 1960s when Subscriber Trunk Dialling (STD) emerged, enabling direct long-distance dialling without the need for operator assistance. It used area code numbers to define the region of a telephone exchange, followed by a local number, just as we use on landline calls today.

Subscriber Trunk Dialling allowed for automatic routing outside of localised telephone networks - Source: Expert Market

By the late 20th century, digital technology began to replace older mechanical switches, highlighted by the deployment of one of the first digital switching systems in the world in the 1980s. This digitisation of PSTN allowed for better quality calls and more efficient call handling overall.

However, since the 2000s, newer and even more efficient communication technologies such as Digital Subscriber Line (DSL), fibre-optic communications and Voice over Internet Protocol (VoIP) have led to the decline of PSTN. Now, as stated at the top of this page, the PSTN network is set to be switched off in 2027, ushering in a new era of telephone communications.

How The Big PSTN Switch Off Will Impact the UK’s Telephone Exchange System

PSTN stands for Public Switched Telephone Network and is the traditional telephone network in the UK. BT Openreach has now decided that the equipment is too old and it will switch them out for fibre-optic cables. This means that every home and business will move onto a digital network.

ISDN (Integrated Services Digital Network) is used by businesses to make phone calls, video calls, and transmit data over PSTN. Businesses still using ISDN for various technologies such as ATM machines, printers, and alarm systems will lose service once the PSTN has been turned off.

To prevent losing service and to improve connectivity, businesses should switch to a VoIP (Voice over Internet Protocol) subscription. While the PSTN will be completely turned off by early 2027, it has already begun so it’s best to get ahead before you’re forced to. If you need help on how to switch your phone service, check out our guide on how to change landline providers.


As UK businesses can no longer continue on the PSTN by January 2027, now is the best time to audit your current service. You may find that you no longer use some products or switching to a different type may better cater to your business needs.

The switch to VoIP won’t just provide businesses with continued service but it will provide a more powerful, cheaper network. To get started, you can use our free quote tool to find the best phone system for your business.


Can I keep my landline after the Big Switch Off?
You’ll no longer be able to use a landline without an internet connection after the 2027 switch has occurred. The only thing you’ll be able to keep is your landline number.

Your phone operator should keep you updated on everything you need to do to keep your landline number. Or you can be pro-active and work out your next steps with our helpful guide on the ‘Big Switch Off‘.

How can I prepare my business for the Big Switch Off?
Our best recommendation is to switch to a top VoIP service as it will provide a much more powerful and affordable network.
Written by:
Fernanda is a Mexican-born Expert Market writer, specialising in providing in-depth insights about business software to help businesses of all shapes and sizes thrive. From VoIP systems to project management software, she’s passionate about helping businesses find the tools and methods that will help give them an edge over their competitors. Fernanda has ample journalistic experience, having written for a multitude of online magazines about topics ranging from Latin American politics to cryptocurrency.
Reviewed by:
Matt Reed is a Senior Writer at Expert Market. Adept at evaluating products, he focuses mainly on assessing fleet management and business communication software. Matt began his career in technology publishing with Expert Reviews, where he spent several years putting the latest audio-related products and releases through their paces, revealing his findings in transparent, in-depth articles and guides. Holding a Master’s degree in Journalism from City, University of London, Matt is no stranger to diving into challenging topics and summarising them into practical, helpful information.