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Cloud-Based Business Phone Systems (PBX) – Pros & Cons, Why to Switch


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Longtime “Saturday Night Live” fans fondly remember Lily Tomlin’s “Ernestine,” a recurring character from the show’s formative years. Ernestine was a smug, preening phone company employee who reveled in customers’ misfortune and delighted in her own employer’s incompetence. She was, simply, the embodiment of everything wrong with the telecommunications status quo of the late 1970s.

A lot has changed since Ernestine delighted audiences. The “Ma Bell” monopoly she represented was broken up into smaller, regional companies. Automation dramatically improved line-switching efficiency and basically eliminated human operators. The cellular revolution eroded legacy landline providers’ dominance and spurred much-needed competition. And the advent of Voice over Internet Protocol (VoIP) substantially improved the performance and usability of complex business phone systems.

Like everything else these days, business communication continues to change at a rapid pace. During the past decade, increasingly sophisticated and reliable cloud-based phone systems have leveraged VoIP and the best attributes of legacy business phone systems to create an agile, cost-effective solution for dynamic businesses and their always-on-the-go employees. If you still run your internal and external communications on an old-school system, you owe it to your bottom line to give cloud-based systems a closer look – and seriously consider making the switch.

What Are Cloud-Based Phone Systems?

Building on “Old School” Business Phone Systems

Cloud-based phone systems improve on their most recent – and still widely used – predecessors, known as on-premise private branch exchanges (PBX). On-premise PBXs are private switching or exchange systems that provide internal connections between system users (for instance, employees in the same office), as well as connections to the public telephone network (to communicate with people outside the office).

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Every PBX station, be it a desk telephone, modem, or fax machine, has an extension number that identifies it internally. Extension numbers can align with the public numbering system – for example, a phone whose public number is (555) 555-4321 might be known internally as “extension 4321” – or have their own numbering systems. Newer PBX systems are fairly sophisticated, boasting useful features such as call forwarding and automatic outside dialing.

When they first hit the scene, PBXs marked a major improvement over manual exchange systems controlled by human operators – the systems skewered by Tomlin’s Ernestine. Even today, PBXs aren’t all bad. They’re partially automated and feature robust interconnections that obviate the need for manual line switching and reduce loads on central exchange equipment. On a per-call basis, they’re much cheaper than the systems they replaced. And most modern PBX systems use localized VoIP networks, built around on-premise hardware, that enhance their capabilities for digitally savvy users.

However, on-premise PBXs – even VoIP-enabled systems – simply aren’t flexible enough to deal with the demands of a globalized, interconnected economy that’s increasingly reliant on the rapid delivery of huge streams of data to and from anywhere on the planet. Accordingly, on-premise PBXs are steadily being replaced by flexible, mobile-compatible, cloud-based VoIP systems that build on the basic PBX model – without expensive, sometimes clunky on-site hardware.

These new systems are alternately known as virtual PBXs, cloud PBXs, or hosted PBXs. They hew to the software-as-a-service (SaaS) model, providing most or all of the functionality of on-premise systems through a dispersed, cloud-based system for which users pay ongoing subscription fees. The biggest difference between virtual PBXs and modern on-premise systems is the amount of hardware – and associated technical expertise – required to be physically present in the customer’s office space. Because they don’t require much on-site hardware or technical management, the upfront cost of virtual PBXs is almost always lower than on-premise systems.

Here’s a closer look at the upsides and downsides of cloud-based phone systems.


1. Limited Hardware Requirements

Cloud-based phone systems require little to no special hardware. They’re typically compatible with landline and cellular devices, including office desk phones, fax machines, and smartphones, including “bring your own device” (BYOD) smartphones (employee-owned devices used for personal and professional activities).

Naturally, without costly hardware requirements, cloud-based phone systems are relatively inexpensive to deploy. Customers simply pay ongoing subscription fees and any costs associated with calling minutes, toll-free phone numbers, vanity numbers, and other add-on services. Cloud-based systems’ lack of bespoke hardware boosts turn-up speed as well – new customers don’t have to wait for hardware to arrive after ordering, nor for internal IT staff or the PBX manufacturer’s employees to install and configure the system. Virtual PBXs are more or less plug-and-play – though there is, of course, a brief learning curve, as is the case with any new software system, no matter how user-friendly.

2. Subscription Model

Most cloud-based PBXs follow a subscription model. Customers generally pay a flat, monthly rate per user, which varies based on the package and provider ($25 to $45 per month, per user, is typical for full-service systems). The subscription fee includes a host of useful features, including call queues and parking, shared lines, intercom capabilities, call forwarding, online collaboration and meeting capabilities, Internet fax, and more. It also includes technical support, system maintenance, and other infrastructure-related work that on-premise PBX users normally have to procure and pay for themselves.

The result: a simple, easy-to-understand bill without hidden charges.

3. Full Mobile Compatibility

In an on-the-go business environment in which many (if not most) employees use personal devices to conduct company business, one of the biggest selling points of virtual PBX systems is their mobile compatibility. The best virtual PBX systems seamlessly integrate employees’ mobile devices without requiring them to change their numbers or forgo personal use. Many have mobile apps that allow access to most or all of the PBX’s features on the go. Some feature special internal text messaging capabilities (business SMS) and paging as well.

4. Remote, Redundant Housing and Systems

Physical security is a major concern for any business hardware system. Though reassuringly proximate to the people using them, on-premise PBX systems are actually quite physically vulnerable. A localized power failure, natural disaster, fire, or robbery can take an entire on-premise PBX out of commission in one fell swoop. Even when such incidents cause no lasting damage, they upend business operations and sow chaos.

Virtual PBXs have multiple layers of physical security, from fireproofing and redundant power systems, to biometric access control and 24/7 visual monitoring. Larger cloud-based PBX providers typically have multiple data centers that back each other up – in the unlikely event that one is knocked out of commission, service continues without interruption.

5. Enterprise-Grade Data Security

Data security is another huge business risk. On this measure, cloud-based phone systems are clearly superior. Out-of-the-box on-premise systems are only as good as the IT teams backing them. Companies that use on-premise systems had better have talented IT professionals capable of building and maintaining an adequate cybersecurity defense. Cloud-based providers handle data security themselves, using state-of-the-art encryption to keep sensitive company data and communications out of the hands of hackers and snoopers.

6. Easy, Nontechnical Administration

Without esoteric on-site hardware and complicated supporting software, cloud-based phone systems are far easier to administer than their on-premise counterparts. Troubleshooting, patches, and upgrades are all handled remotely by virtual PBX provider staff. In fact, most leading cloud-based systems brag that rank-and-file IT employees with no specialized system knowledge – or even nontechnical employees, such as office managers – can capably manage and maintain their virtual PBXs.

For smaller companies with limited in-house IT support, this ease of administration eliminates the need to hire costly specialists or farm out work to contractors of unknown quality and cost. And, for companies of any size, admin-friendly virtual PBXs free up valuable IT resources that can be better put to use elsewhere.

7. Instantaneous, Worldwide Reach

Since they integrate seamlessly with mobile networks, cloud-based phone systems offer instantaneous access to remote employees and independent contractors, whether they’re located in the next county or halfway around the world. This is a huge benefit for smaller companies with dispersed work forces, as it conveys to outsiders the impression of a large, cohesive in-house workforce – accounting just down the hall from sales, and so forth. Clients, prospects, and vendors who call into such companies’ main office lines never have to know they’re being transferred to someone hundreds or thousands of miles away.

8. Easy to Switch Office Locations

Is your business expanding, downsizing, or simply moving into new digs? Without any system-specific hardware to install, cloud-based phone systems are highly portable. And, since they’re fully mobile-compatible, changeover is seamless – there’s no interruption in service or accessibility when they’re turned up in new locations, as users can continue to communicate on their mobile devices.

By contrast, on-premise PBX changeovers inevitably cause some downtime. Depending on when that downtime occurs, it can have adverse business impacts.

Easy Switch Office Locations


1. Potential for Higher Ongoing Costs After Initial Turn-up

One of the strongest arguments in favor of on-premise PBX systems is their potential to reduce ongoing communications costs. Depending on size, usage, equipment, and other factors, organizations can pay less to house and maintain their own PBX systems over the long term, relative to ongoing virtual PBX subscription costs.

However, this is only likely to be the case for organizations that don’t expect to move their offices anytime soon, as the costs associated with installing fixed PBX systems in new offices can be significant. Businesses that expect their communications needs to change significantly over time should also think twice about investing in on-premise PBX systems, as the costs (labor and equipment) associated with adding expansion hardware can quickly escalate.

2. May Depend on Internet Signal Strength

Some cloud-based systems rely solely on local (line) and wireless Internet connections. Call quality is thus highly dependent on connection quality.

When the connection is poor or spotty, it can be difficult or impossible to carry on a voice conversation, let alone conduct a video meeting or transfer large amounts of data via Internet (paperless send) fax. And, if the connection goes out altogether, phone stations not connected to cellular networks (e.g., desktop landlines) are rendered temporarily inoperable. This is less of a concern for companies that conduct most of their communications on mobile devices, but nevertheless worth keeping in mind.

3. Usage Charges Can Surprise

Though some cloud-based systems offer unlimited calling plans, others charge a flat rate for a set number of minutes (say, 1,000 minutes per user, per month) and bill the rest at fixed or variable per-minute rates. Limited calling plans are more common at lower price points, so companies that opt for seemingly budget-friendly plans are the ones most likely to experience sticker shock after receiving their first bills.

Usage charges are also problematic for global companies that have lots of clients or team members overseas – for example, enterprises that pair U.S.-based account, sales, and executive teams with back-end development or manufacturing teams based in cheaper labor markets. At minimum, decision-makers need to carefully game out their communications budgets and expected usage rates to determine whether an unlimited virtual PBX plan makes sense, and choose their provider accordingly.

4. Potential for Vendor Lock-in Period

Some cloud-based phone system vendors require lock-in periods for new customers, similar to cell phone contracts. Others simply offer discounts for longer-term bulk payments – for instance, a 20% price cut on subscriptions paid a year in advance. In both cases, there’s an obligation or explicit incentive to remain loyal. This raises customers’ risk of getting stuck with sub-par service down the road.

That said, it’s much easier to change cloud-based phone system providers after a lock-in or advance-paid subscription period expires than to switch on-premise vendors, which requires writing off thousands of dollars in equipment, waiting for new hardware to arrive, and retraining staff around a new communications architecture.

How to Make the Switch to a Cloud-Based Phone System

Switching to a cloud-based phone system is not a difficult proposition. If you’ve ever installed (or been involved with the installation of) an on-premise PBX, you’ll be amazed at how smoothly a well-oiled virtual PBX turns up.

That said, there are a lot of competing virtual PBXs out there. Since your business can’t thrive without a robust, flexible communications system, it’s crucial to evaluate the relative merits of as many options as possible and determine which provider best fits your needs.

Filter your choices through these questions and considerations, along with any others that may apply more narrowly to your specific business situation:

  • User Count. How many employees or users do you expect to have on your system? Do you anticipate near-term user growth? Companies planning for growth should look to cloud providers that discount larger customers’ per-user rates.
  • Toll-Free Calling. Does your business have a toll-free number, either in the U.S. or internationally? Do you need more than one? How heavily is it used? Companies that need toll-free numbers should look to providers with ample toll-free calling allowances and low per-minute rates for call time in excess of plan thresholds.
  • Call Management Complexity. How complex are your call management needs? For instance, do you have multiple call groups, broken out by department or some other classification scheme? Do you need to park or screen calls? Do you need easy access to call logs? Do you require shared lines, paging, or intercom capabilities? Be sure to review each candidate provider’s call management capabilities thoroughly and ensure that they’re available with your chosen plan.
  • Conferencing, Meeting, and Collaboration Needs. Remote collaboration is a fact of 21st-century business life. Look for virtual PBX providers that offer full collaborative suites, preferably in generous or unlimited packages: business SMS, Internet fax, mobile and desktop video conferencing, mobile and desktop screen sharing for presentations, and the like.
  • Hardware Requirements. Are your desktop hardware needs fixed? Companies with flexible or variable desktop phone needs should look into phone rental arrangements offered by some virtual PBX providers. There’s typically an added cost (not included in subscription rates) associated with this service, but it can be easier – and, for short periods, much cheaper – than buying actual phones.
  • Software Integrations. Does your business rely on other cloud-based software services, such as Box, Dropbox,, or Zendesk? Look for cloud-based phone systems that integrate with these products to enhance specific cloud PBX features, such as Internet fax and collaborative tools.
Cloud Based Phone System

As noted, there are plenty of virtual PBX providers to choose from. Not all are created equal.

ringcentral logo

RingCentral, one of the most prominent and well-regarded cloud-based operators in the U.S. today, addresses these considerations, and then some. Like other cloud-based systems, RingCentral is a turnkey solution that doesn’t require clunky hardware or on-premise technical expertise. It’s easy to implement and manage, and it offers a host of benefits that many of its competitors can’t match.

The procedures and benefits described below are specific to RingCentral, but also roughly comparable to other high-end virtual PBX providers. If you decide that another option is better for your company’s needs, you can still use the following as a rough guide.


To get started with RingCentral, you simply install its mobile app on every smartphone you plan to carry over to the system. Then, plug your IP-enabled desk phones and desktop computers into your office Internet connection.

Throughout the process, you’re paired with a RingCentral implementation specialist, who walks you through expected user counts, hardware requirements, line requirements (local, toll-free, vanity), existing number transfer, and other important considerations. Your specialist can help you with the basics of the system, or you can use a user-friendly online wizard to learn the ropes – including how to add new users, phones, and phone groups (departments).


Your administrator – yourself, an IT employee, or anyone else you trust to oversee the system – can manage the entire system, across all devices and office locations, direct from a RingCentral desktop or mobile app. Most (if not all) management activities are straightforward enough to be handled outside your company’s IT ticketing framework, so the everyday business of running your company phones doesn’t interfere – or even intersect, in most cases – with your IT operations. Also, many device- and user-specific changes and management tasks can be handled at the user level, with or without the administrator’s knowledge or permission.

Notable RingCentral Benefits

1. Unlimited Domestic Calling With All Plans
All RingCentral plans come with unlimited domestic (U.S. and Canada) calling, so you don’t have to worry about racking up unseemly bills on regular domestic business calls. Per-minute rates for international calls vary by country, call type (landline or mobile), and local area or city code, but start at less than $0.04.

2. Phone Rental Option
RingCentral has a phone rental option for businesses with variable landline needs. This is a nice benefit for seasonal businesses that hire new sales or customer contact associates for a few weeks or months out of the year – and a nice alternative to paying hundreds or thousands of dollars upfront for dozens of phones, only to chuck them in storage for months on end.

3. Seamless, Standardized Call Management and Phone System Administration Across All Devices
RingCentral’s call management capabilities include customizable answer rules, call forwarding, call screening, recorded call logs, presence, intercom and paging, conferencing, and more. Moreover, they’re included in all plans at no cost, meaning small businesses operating on a shoestring budget get the same call management capabilities as the big boys.

4. Robust Collaboration and Conferencing Capabilities
In addition to old-school collaboration features such as conference calling, RingCentral has impressive collaboration tools: Glip, a productivity tool with real-time chat capabilities; multi-point desktop and mobile conferencing; and mobile meeting tools, including screen sharing and other useful features. In fact, RingCentral plausibly argues that its conferencing and collaboration tools, plus robust integrations with cloud storage and file sharing software, eliminate the need for standalone telepresence or virtual meeting systems.

For cash-strapped businesses that prefer to pay for as few cloud services as possible, this is a major value-add. Many fellow virtual PBX providers don’t offer the same level of collaborative service.

5. U.S.-Based Implementation & Support
RingCentral’s support staff is U.S.-based, meaning it understands how business is done in the United States, is responsive to your needs, and has its best people on the job when you are.

6. Powerful Integrations
RingCentral integrates with nearly a dozen SaaS platforms, from secure file storage suites to business process management platforms:

  • Box
  • Dropbox
  • Desk
  • Google
  • Office 365, Outlook, and Skype for Business
  • Oracle
  • Zendesk
  • ServiceNow

With these integrations, RingCentral is more than a call handling system – it’s a valuable business productivity engine.

7. Feature-Rich Plans at Competitive Cost
RingCentral is not the cheapest cloud-based phone system around. Some of its less capable competitors are able to charge less because they offer less: fewer integrations, less generous call time allowances, and limited support.

But, given its impressive capabilities, RingCentral is definitely competitive on cost. The baseline Standard Plan starts at $24.99 per month, per user, after a 30-day free trial. The Premium Plan, which has more generous toll-free call minute and collaborative allowances, plus a host of features (including certain integrations) not available with Standard, is $34.99 per month, per user. And the uber-generous Enterprise Plan, made for larger businesses, costs $44.99 per month, per user.

These price points are in line with, or even lower than, fellow full-service virtual PBX providers. But, again, every business is different. Before you hop onboard with RingCentral or any other cloud-based phone system, make sure their offerings and pricing jibe with your needs.

Feature Rich PlansFinal Word

A friend who works in IT recently remarked to me that, in the not too distant future, we’ll look back and ask, “How did people ever get by without smartphones attached to their bodies?” I’m paraphrasing, but the point was clear: Communications technology is changing rapidly, and in sometimes unpredictable ways. Why do we have to pull our phones out of our pockets and unlock their screens to make calls or connect to the Internet, when it would be much easier to simply flick our wrists, twirl our fingers, or cock our eyes? Eventually, we could all be walking around with bio-safe communication devices embedded in our heads or limbs – because why not?

In the near term, a similar (if less dramatic) dynamic is playing out in business communications. Cloud-based phone systems aren’t quite yet table stakes for small, midsize, or even enterprise-scale businesses. But, as time passes and the case for agile business telecom solutions becomes even stronger, companies that continue to cling to legacy systems will increasingly be regarded as curiosities.

Bottom line: Unless you have the resources and personal discipline to truly live off the grid, it’s tough to resist (or even make a cogent case against) superior technology that enhances efficiency and productivity. Certainly not when you have a responsibility to do right by your employees, customers, and shareholders.

Do you use a cloud-based phone system for your business? If not, are you considering a switch anytime soon?


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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he's not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.