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Hosted Phone Systems: What Are They, How Do They Work, and Why Might You Want One?

Ready to optimize interactions with colleagues and customers? With a hosted phone system, you can. Hosted phone systems enrich internal and external communications with capabilities like global flexibility, scalability, advanced call management, CRM integrations and more. Here’s everything you need to know about hosted telephone systems.

Photo of several employees with telephone headsets speaking with customers or other employees


What Is a Hosted Phone System?

A hosted phone system is an internet-based telephone system that’s hosted by a third-party provider.

Instead of storing servers and applications in your office space, the phone provider hosts hardware in off-site data centers — or more typically, today, the cloud. And, instead of physical phone lines, hosted phone calls travel over internet connections thanks to Voice over Internet Protocol (VoIP) technology.

Hosted phone systems go by lots of names: cloud PBX, virtual PBX, VoIP phone systems, and UCaaS, to name a few. While some are interchangeable and some aren’t, there are key system differences to be aware of.

Let’s explore a couple of these differences.

Hosted or Cloud-Based UCaaS: What’s the Difference?

Cloud vs. hosted phone systems — are they the same thing? Well, not exactly. But they're very similar.

Instead of being hosted in remote data centers, a cloud-hosted phone system resides in the cloud. As a result, it supports a wider variety of connections, improving remote working capabilities.

You can think of cloud-hosted phone systems as a more mature version of hosted phone systems. However, these terms are often used interchangeably, and most hosted phones these days are cloud phones.

But the most evolved of them all? That award goes to Unified Communications as a Service (UCaaS) solutions.

UCaaS platforms go beyond just phone calls. They deliver fully-integrated audio, video chat, and instant messaging in one centralized solution across both internal and external communications.

Vonage Business Communications, for example, is a UCaaS solution because it facilitates conversations across voice, instant messaging, and video, as well as SMS and more

The telephone is still the favorite channel for customers at 59%, according to the fifth edition of Salesforce’s State of the Connected Customer report, which gathered insights from 15,000+ global consumers and business buyers. Other channels like online chat, mobile apps, and social media, though, are rapidly growing in popularity, particularly among younger generations.

How Do Hosted Phone Systems Work?

Hosted phone systems don’t transfer voice data over physical copper lines like traditional landline-based systems. Instead, voice data is sent over an internet connection.

Let’s break it down into steps. Imagine you’ve just received an incoming call. The process would go like this:

  1. The call is sent to your hosted phone provider.

  2. Your provider transforms the voice signals into small digital data packets.

  3. These data packets travel over your internet connection and are routed to your device.

  4. When the data packets reach you, they’ll be converted back into crisp, clear audio.

Advantages and Disadvantages of Hosted Phone Systems

Comparing hosted vs. on-premises phone systems is best explored by looking at the pros and cons of hosted systems. Then we can see how they stack up against traditional landlines. Let’s start with the advantages:


Cost Savings

Setting up and maintaining a hosted phone system is typically considerably more cost-effective than traditional alternatives.

First of all, you don’t need to purchase hardware or additional infrastructure, which is a significant upfront cost. In most cases, you can use the equipment that you already have (desk phones, mobiles, PCs, etc.).

Secondly, there’s fewer ongoing costs and fees as your servers are hosted remotely by your provider. As a result, you save on maintenance and upgrade costs because your provider handles those, too.

Billed on a subscription basis, hosted phone systems provide cost-effective flexibility. Features that you have to pay for with traditional phone services are usually included in hosted phone system packages — of which there are often several to choose from —  so you save a lot of money there, too.

Remote Team Flexibility

The workforce’s desire to work from home is growing year by year. According to Owl Labs’ sixth annual State of Remote Work report, which surveyed over 2,300 full-time U.S. workers, 42% of workers prefer to work remotely full-time, while 36% want a hybrid model.

In the past year alone, the number of people preferring to work in the office full-time dropped by 24%.

Remote working facilitation is one of the prime advantages of VoIP. As long as your employees have an internet connection, they can make, receive, and manage calls from anywhere.

So, whether workers are in their home office, traveling between locations, or in a different country altogether, they can stay connected to colleagues and customers.

It goes even further than that, as not only can colleagues communicate globally and on the move, but they can collaborate on their chosen devices and switch seamlessly between them.

Easy Installation and Maintenance

Traditional phone systems are complex, time-consuming, and costly to set up and maintain. Not only will you need to hire a specialist to perform the initial setup, but you’ll need to hire an IT department to maintain your hardware.

Legacy hardware maintenance can be difficult, leading to increased downtime. On the other hand, hosted phone providers are responsible for set up and continuous maintenance on a 24/7 basis.

If you do have a problem, rest assured that it will be resolved quickly. Most providers offer 99% uptime, while some (like Vonage) offer 99.999% uptime*.

*Based on Vonage's average uptime from July 2021 to February 2022.


Hosted phone systems are able to grow seamlessly with your businesses. Unlike traditional solutions, which require you to physically add new system lines every time you want to scale, hosted phones let you add new users at the click of a button.

So, no more risks purchasing additional lines in anticipation of growth — just  pay for what you actually need and use. And if you want to remove lines, you can do that just as easily.


Of course, there are a few disadvantages to hosted phone systems, and it’s only fair to discuss them.

However, there aren’t many. Plus, they’re all simple enough to work around as long as you’re prepared. So let’s explore the disadvantages of hosted phone systems.

You Need a Reliable Internet Connection

To ensure sufficient VoIP voice-call quality, it’s recommended that you have at least 100 kbps of upload and download bandwidth per concurrent call. So if you had 10 employees making calls at the same time, you’d need 1 mbps.

That’s the bare minimum, though. If you’re using unified communications features, including video calls, you’re going to need significantly more speed. Fortunately, this is easy to test and rectify if you’re in the office. You can simply upgrade your package with your internet provider.

It gets a little trickier when employees work from home, as it’s up to them to fix any internet connectivity issues they encounter. Have your employees conduct speed tests and have an audio or video call with them to verify their call quality.

VoIP Relies on External Power

If there’s a power outage or your internet goes down, you’re not going to be able to make and receive calls.

Unstable connections can also degrade call quality, leading to poor customer experiences. This is certainly something to be aware of as traditional phone systems aren’t hindered by this limitation.

Security Implications

The cost of a data breach is at an all-time high. The global average currently stands at $4.45m, according to IBM’s Cost of a Data Breach Report 2023, which is a 2.3% increase from 2022.

Just like anything existing in the cloud, hosted business phone systems are susceptible to cyberattacks. Investing in phone hosting means that you have to put your faith in your provider and trust that they’re taking the necessary steps to protect your data.

Even a hosted small-business phone system should have enterprise-grade security. Look out for common security certificates and audits like ISO 27001, PCI-DSS, and SOC. Make sure they adhere to data privacy laws like GDPR and HIPAA, as well.

And, critically, ensure that providers are using data encryption.

Hosted Phone System Features Your Business Could Benefit From

So, we’ve looked at the pros and cons of hosted phone systems, but what are the specific features that can make them so useful to businesses?

Video Conferencing 

Sometimes, a phone call just won’t do. Video conferencing enables globally dispersed teams to connect face-to-face in a way that just isn’t possible with audio calls alone.

It’s one of the reasons why 62% of employees prefer to be on camera during video meetings, according to the Buffer State of Remote Work 2023 report, which highlights the experiences of 3,000 remote workers from around the world.

Video conferencing is a core offering of UCaaS solutions. They integrate video into your communications, eliminating the need for siloed, third-party tools.

Employees can jump from phone calls to instant messaging to video meetings in no more than a few clicks — a capability that is essentially non-existent in traditional phone systems.

Real-Time Advanced Reporting and Analytics

Sure, some legacy phone systems do have reporting and analytics capabilities, but they’re extremely limited. The most you’ll probably get is your call volume data. And even then, you’ll have to wait a while for support to pull it and send it over.

On the other hand, hosted phone systems and UCaaS platforms can deliver easy access to rich individual, team, and business-wide analytics in real time.

Providers like Vonage offer online, custom-built dashboards. Simply log in to access volumes of comprehensive historical and real-time data. This data can be used to determine performance and drive pivotal changes that eliminate bottlenecks and optimize performance levels.

Some of the most important metrics to track include:

  • Average speed to answer

  • Average call volumes (on a daily, weekly, monthly, and seasonal basis)

  • Customer wait times

  • Call abandonment rates

  • Average call duration

  • Volume of first-call resolutions

  • Missed calls

  • Agent or employee talk times

  • Customer satisfaction (CSAT) scores


An Interactive Voice Response (IVR) system is essentially a virtual receptionist. Using pre-recorded menus, inbound callers can interact with the IVR system to quickly route themselves to the right department or person.

So callers don’t have to wait to speak to the right person, cutting down wait times and improving first-call resolutions.

Hosted phone systems come with lots of other handy call management features to reduce your missed call volumes and wait times, too. Simultaneous ring, for example, rings multiple extensions at once.

Call Routing

So you’ve heard of basic-but-essential routing features like call forwarding and call queuing, right? Well, hosted phone systems can distribute calls in alignment with more complex preset routing rules.

These rules can be changed whenever you like in response to your current situation, maximizing operational efficiency and customer experiences. So you can adapt your routing rules according to staffing levels, customer demand, seasonality, and more.

Call routing options may differ among providers. The most common ones are:

  • Skills-based routing: Calls are routed to the recipient with the most relevant skill set or knowledge.

  • Least occupied or idle agent routing: Calls are routed to team members with the least amount of talk time to balance workflows.

  • Time-based routing: Calls are routed based on your business hours or time zones.

  • Rotary routing: Calls are routed based on a predetermined rotating order.

Call Recording and Transcriptions

Call recording is a great feature on its own. Recording calls for training purposes, compliance, and general fact-checking is important, which is why it’s a standout feature of hosted phone systems. But when combined with transcriptions, it’s even better.

Hosted phone systems can transcribe calls and voicemails and send them to your email for later reference. This saves you hours and boosts productivity. Instead of listening to hours of recordings, you can simply access a searchable transcript of the call and find what you need in seconds.

A voicemail-to-email transcription component can also be particularly useful. If you aren’t able to listen to a voicemail (for example, if you’re in a conference), you can read the transcript to get a gist of the message’s contents.

Desktop and Mobile Apps

If your employees work on the go, they’ll need a powerful mobile app as well as a desktop app.

The best hosted phone services will provide employees with a mobile app that can be downloaded onto their chosen mobile device — smartphones, tablet, laptop, etc. — to essentially turn it into a full-powered business phone.

The result? Employees on the move can access the same advanced call management features as employees using desk phones or PCs in the office. An example of this is the Vonage Business Communications mobile app, which is available on iOS and Android devices.

Powerful Integrations

The ability to integrate your UCaaS platform with your other essential business software unlocks workflow optimization benefits that landlines can’t match.

Integrations unify individual applications, combining functionalities and streamlining data flows.

Hosted phone systems can typically integrate with your CRM, collaboration, and productivity applications. Salesforce, Microsoft Office 365, and Google Workspace are just a few examples.

Choosing Hosted Phone Systems or UCaaS Solutions Helps Prepare Your Business for the Future

The future of business demands agility and innovation. Customers expect speedy, personalized experiences across an increasing number of channels.

Workflow automation and app integrations become essential for managing data and maximizing productivity. And to access the best talent in the hybrid-first workforce, we need high-performing global communication and collaboration capabilities.

Hosted phone systems and UCaaS solutions future-proof your business. In addition to omnichannel experiences, automation, integration, and global flexibility, you can access a range of ever-expanding features.

Unified communications solutions like Vonage Business Communications continually evolve in alignment with the fast-paced business climate. From extensive communication and collaboration features to rich analytics and scalability, arm yourself with a solution that’s equipped for longevity.

FAQs About Hosted Phone Systems

Landlines use physical copper wires to make phone calls, while hosted phones use an internet connection.

For this reason, a hosted telephone system can be used across locations and devices, enhancing remote working. Landlines are geographically restricted, which makes remote working pretty much impossible.

But that’s not all. Landlines are also expensive and difficult to set up and maintain, whereas hosted phone services are an easy, cost-effective solution.


The pricing models of hosted phone services vary depending on your provider, the number of employees you have, and the package you choose.

Most providers offer different pricing tiers, with the most expensive being the package that offers the most features, capabilities, lines, etc.

Vonage’s Mobile plan for SMBs starts at $14.99 per user/per month. The Premium plan can be as little as $24.99 per user/month, and the Advanced plan starts at $34.99 per user/month.  Please note that Vonage plan pricing can vary based on the number of lines and premium features added. Be sure to check our pricing page for the latest plans or sales that fit your number of employees!

Yes, without a doubt. Legacy phone system setups require you to purchase costly hardware and often a specialist to set this hardware up. And then you need to budget for ongoing maintenance, upgrades, overheads, and IT experts.

Hosted phone systems require little more than an initial setup fee and your monthly subscription. The best part is that you can increase or decrease lines as and when you need them, something you can’t do with a traditional phone system. So you can save a lot of money that way, too.


You don’t need a bunch of expensive hardware to use hosted phone services. All you need is an internet connection, VoIP-enabled phones (smartphones, laptops, desktops, etc), and maybe a headset and a microphone.

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Let's connect!

Want to know more about hosted phone systems and how they can help you future-proof your business? We’re here to help! Call us at 1-844-365-9460, or fill out this form! A dedicated specialist will show you how a hosted phone system can do things like:

  • Turbocharge both your internal and external communications
  • Significantly reduce set-up, equipment, maintenance, and other costs
  • Easily enable remote and/or hybrid workforces

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