Service providers can provide VoIP services to their customers essentially in to ways: offer premise-based equipment or provide them with a hosted service.

A hosted PBX system delivers PBX functionality as a service, available over the traditional telephone lines and/or the internet. Hosted PBXs are typically provided by the telephone company, using equipment located at the telephone company’s exchange premises. This means the customer organization doesn’t need to buy or install PBX equipment (generally the service is provided by a lease agreement) and the telephone company can (in some configurations) use the same switching equipment to service multiple PBX hosting accounts.

The installation and implementation costs for hosted solutions are almost always lower than for premise based solutions. But as hosted solutions do have recurring fees, the total cost of ownership on a multi-year basis should be evaluated to determine if this creates savings over the planned lifetime of the system.