The choice of installation depends upon the specific needs of your company as well as your company’s level of VoIP/Telecom expertise, commitment to managing your telecommunications in-house and the amount of capital you are willing to commit to managing your telecommunications.

There Are 2 Types of Business VoIP Installations

  • Hosted VoIP: Also referred to as a Virtual PBX is the most common solution for small and medium businesses. With Hosted service, the hosted service provider supplies the VoIP system, manages and hosts the system in the Cloud.
  • Premises VoIP: In this type of installation, you purchase all of the components VoIP phone system (VoIP hardware and VoIP software). Your business is responsible for the maintenance and operation of the system, i.e. hardware, software, firmware etc.

Which Installation is Right for my Company”

There is no right and wrong answer to the questions ” Which Type of VoIP Installation is Right for My Comapny”. The answer depends upon your company’s specific requirements. In general, if you need more customization, you are probably going to need a premise based solution. This is not to say you can’t customize a Hosted VoIP solution, you can. It is just a more difficult to do.

Each type of installation poses different challanges and responsibilities. Knowning those before you start will save you a lot of time and money.

Flexibility to Add/Remove Users

A Hosted VoIP phone service offers a great deal more flexibility than a Premise Based VoIP system. The main reason for this is that with a Hosted VoIP installation your company has not purchased the VoIP hardware and you therefore are not locked into this solution for the next 5+years. Another reason a Hosted VoIP phone system is more flexible than a Premises solution is that your company can easily expand your system across geographic locations, including home offices without purchasing additional VoIP hardware.

Another flexibility advantage of Hosted VoIP over a Premises based installation is that changes can be made much more quickly and easily. Moves, adds and changes as they are commonly referred to in the telecommunications industry are easily completed without the need for a technician to come to site, saving about $125.00 per visit.

A Hosted VoIP solution allows you to easily move telephone sets while keeping the telephone’s original number, extension and features intact. You can even move a Hosted VoIP phone set to a completely different physical location and the phone will still behave as if it were in your primary office location. You simply unplug your phone and plug it into another network jack location that is connected to the network. You can literally, take a phone, from a Hosted VoIP phone system, home with you at night and plug it into your high speed connection and it will function as if it were still at your office.

As new features and applications are designed they can easily be added to your Hosted VoIP phone system, in fact most Hosted VoIP Providers do this with out charging. With Premises installation, this is entirely your responsibility and your expense.

If your company requires customized applications that need to be integrated with your phone system, a Premises installation is probably going to be required as you would have to get the Hosted VoIP Provider to makes changes to their entire system, which is unlikely to happen.

Cost Considerations

Both types of VoIP installations can save your company big money versus a traditional telephone system. Your monthly bill should be a lot lower depending on your calling patterns, particularly if your company is a heavy phone user and you make a lot of long distance calls. Another, and often over looked financial benefit of both types of VoIP installations is the increase in productivity VoIP makes possible. This is really the primary reason why VoIP has been adopted by so many companies. We have another article that discusses VoIP & Productivity.

Determining which type of VoIP installation is the least expensive should include a time horizon of about 5-years. The reason is, a Premises installation involves a significant capital investment which must be amortized over the useful life of the equipment. A Hosted VoIP installation has minimal upfront capital investment. We have discussed the economics of Hosted Vs Premises VoIP in an earlier article.


There is no difference in the reliability or voice quality between a Hosted VoIP solution and Premise VoIP solution. VoIP, while once considered unstable, has now become a reliable communication solution. Distributing call processing functions across the network eliminates any single point of failure. Choppy calls, once the number one complaint among users, have now stabilized thanks to newer technology and better networks.


With a Hosted VoIP system the only hardware that you need at each location are the IP Phone sets and a specialized VoIP router (at each location). With a Premise based installation, you will be responsible for managing the entire telecommunications infrastructure, which includes VoIP servers to run the VoIP software, specialized routers and a technical staff to manage the system. In fact, you should have at least 2 full-time IT staff members dedicated to your phone system since your phone system is a “24/7″ operation.

If you are really serious about securing your VoIP phone system, you should consider “Redundant Facilities”. If you primary location becomes in operable, a secondary facility will take over and your phone system will continue to function. There is obviously a significant cost to setting up a “Redundant Facility”, and this cost should be included in your analysis.


The decision between a Hosted VoIP installation and a Premises installation is more a function of your company’s needs. If your company’s needs can be met by either installation type, and your are completely indifferent to the the considerations discussed above and only want to base your decision on the least cost alternative, then you should perform a standard cost analysis.

Most analysis we have seen that compares a Hosted Vs a Premises VoIP installation has a 5-year break even. During the first 5-years, the analysis favors Hosted VoIP because of the low initial capital outlay after 5-years, the analysis favors Premises installation as the system has been fully depreciated and the ongoing cost of running the system are generally less. But, after 5-years, do you really want to own a 5 year old system?