Business Telephone Service Explained
For the most part, business phone service comes in two variations:
- Traditional telephone service
Business VoIP Phone Service
VoIP, or voice over Internet protocol, is an alternative phone service technology to traditional phone service.
When considering a VoIP business solution, you should consider
- How VoIP is different from traditional telephone service
- How those differences will affect your business
- How those differences determine the price you pay
- Requirements for getting a VoIP system
The major distinction in how VoIP works is in the type of data it uses. While traditional telephone service transmits calls as analog data, VoIP transmits calls as digital data.
So, when you place a call with a VoIP phone, your voice is translated into binary which is then sent over the Internet to reach another VoIP phone or computer or an analog phone.
Digitized data, with a modern Internet network, is cheap and easy and moves quickly (the speed and price is because of the improved network infrastructure). And because calls are sent over the Internet, they are all essentially local calls, which ultimately saves you money. With VoIP, you have calls sent in a more technologically-advanced way over a more efficient network.
With a business VoIP service, it is easy to manage many phone lines through a software program on your office computer. And business VoIP systems come planned with many features to make your experience with your program better and easier.
VoIP business plans are often very cheap. VoIP service providers offer business VoIP solutions based on office size. This makes it easy to customize your phone service to fit your office size.
Business VoIP service providers offer a hosted PBX. A hosted PBX performs all of the same functions as a standard analog PBX, but they are much cheaper.
With a hosted PBX, you don't keep any of the PBX machinery on your business site. Instead, all of your PBX functions are hosted by your VoIP service provider. This means you don't have to spend money buying and maintaining a PBX system in your office. Instead, the $1,000 you might spend on a PBX and the $1,000 you might spend on installation go back into your pocket.
And with a hosted PBX, it is easy to add more phones or more phone lines, though there are often fees for adding additional lines. For example, at RingCentral, the RingCentral Pro plan costs $9.99/month and includes 10 extensions. Extra extensions cost $2.99/month and can be automatically provisioned from the RingCentral control panel. So that saves you another $100 on installation costs.
Traditional Phone Service
- What is a traditional telephone company?
- How does the structure of a traditional telecom company determine the prices you pay?
Traditional phone service providers include companies like AT&T, Verizon, and CenturyLink.
These companies send and receive calls using the PSTN, or public switched telephone network. The PSTN is composed of a system of cables, telephone lines, satellites, and cellular networks. It has been used to send calls since the days of the very first phone calls (this is one of the reasons the PSTN is expensive; it's big and old, so takes a lot of maintenance).
The PSTN is an analog system. While it is fairly inexpensive to send analog data, it is difficult to transmit over a long distance.
To transmit high quality analog data over a long distance, the data must stop many times along the way to be transferred. This means that to place a call from New York to California using the PSTN, your call has to make regular stops along the way so that the analog data won’t decrease too much in quality.
Because of all of this stopping, PSTN calls can get expensive. Much of the PSTN has now been converted to digital technology, but the “last mile” of standard telephone service is still analog -- and expensive.
Almost all businesses have a PBX, or public branch exchange, which routes calls within an office. PBX allows for call forwarding, conferencing, and multiple phone line extensions, among other features.
With an analog phone system, a PBX can be kept either on business premises, or in a remote location. Generally, however, these PBX systems are very expensive. They require a lot of hardware and equipment, and many companies also charge consultation and installation fees.
For example, a standard 8 line PBX like the Grandstream 8 Lines PBX costs $869. After that, fees for maintenance and installation can cost $100/hour. And if your PBX is manually operated, a PBX operator is usually paid about $10/hour.
If you choose to keep a PBX on site, you also need to find climate-controlled storage for the PBX.
If you are going to use a traditional PBX system, you also need to be sure that your model can keep up with any anticipated business growth or expansion. Otherwise it can be costly to add more phones and phone lines to an old system.
Other Business Phone Options
Hybrid Phone System
For some people, the best solution for a business phone service is a hybrid of traditional phone service and VoIP phone service.
In these cases, a business will usually use one system as a backup for the other one. Hybrid systems fare well in the event of power outage, when a VoIP system becomes unusable, or for emergency calling.
In some cases, it may actually be cheaper for a business to use the traditional phone service for some calls, and a VoIP service provider for others. For example, if you already have a lot of analog phones in your office, you might find it too expensive to replace all of your phones at once or to purchase an adapter for each one.
In this case, the money that you would save by switching to a VoIP service from a traditional phone service would eventually make up for the costs of the adaptors or new phones. However, this is one case in which someone might choose a hybrid system. Usually, hybrid systems with have one analog line to use as a backup and convert their rest of their system, however slowly, to VoIP.
A SIP trunking-enabled business VoIP system is an example of a hybrid phone system.
The PSTN is an analog system. While it is fairly inexpensive to send analog data, it is difficult to transmit over a long distance.
Small business phone systems generally use one of two technologies: voice-over IP (VoIP) or landlines. VoIP technology uses your internet connection to transmit your voice as data while landlines use traditional copper wires. VoIP is newer technology that delivers a wider range of features for a lower cost than traditional landlines.
In this article, we will explore the two technologies in greater detail, compare their advantages and disadvantages, and help you decide on a solution for your business.
Our Recommended Small Business Phone System: VoIP
Small business VoIP phone service from Nextiva starts at $32.95/month per user for 1-4 users and decreases as more users are added. For five users, VoIP phone service costs about ⅓ of what a five-line landline service from Verizon will cost. This used to mean a trade off in call quality, but advances in the technology mean that VoIP phone service is on par with a landline.
VoIP also delivers call management features like call transfer, call queuing, group ringing, phone directories, and many others. Therefore, we recommend VoIP technology for your small business phone system as a cost efficient and future proof solution.
VoIP vs Landline Comparison
|Cost of Service|
|Major Advantages of Service|
|Major Disadvantages of Service|
VoIP vs Landline: Cost of Service
Regardless of the technology behind the service, for most small business owners the primary factor when deciding between VoIP and a traditional landline will be the cost. There can be initial setup costs, which some service providers will waive, as well as ongoing monthly costs for both types of services. Here is a summary of how you can expect them to break down, using costs from Nextiva and Verizon as examples for VoIP and landlines, respectively.
All with three-year agreement
|$563.27/month for five lines, including taxes (based on NY) and fees¹|
|Domestic Call Rates|
|International Call Rates|
depending on destination.
¹Quote was obtained from a chat with an online Verizon customer service representative on November 27, 2017 and based on a service address in New York, NY.
With a traditional landline phone system, you can choose between individual phone lines or an in-house PBX system. A PBX system allows you to add additional functionality like call transfer, intercom, call queuing, group ringing, phone directory, etc. to your phone system.
But if you want these additional features, then the cost of the PBX system hardware can quickly run into the thousands of dollars — especially when you factor in the cost of having a technician install and maintain it.
However, these features come included with most VoIP services for no additional cost and without the need for additional hardware.
Aaron Udler, President and CEO of the business communications software training firm, OfficePro, calls cloud-based VoIP service providers the “wave of the future.” Udler says that his firm is “seeing Fortune 100 companies make this transition, saving them millions of dollars each year on old PBX phone systems, VoIP hardware, and landline hardware.”
What is VoIP Phone Service?
Instead of your local phone company’s copper wires, VoIP phone services use your business’ existing internet connection to convert and transmit voice as data. If you’ve used Skype to make a phone call, then you’ve used VoIP technology before. But while Skype and other services like Vonage are typically used by individuals, there are other services, like Nextiva and RingCentral, that leverage the same technology on a larger scale for businesses.
VoIP systems also give you the option to buy your equipment outright and have your IT team self-host and manage the service, or to forego buying it in favour of renting the equipment from your service provider and having them host it in the cloud. But because most small businesses don’t have the resources to dedicate to an in-house IT team, we will focus on cloud-based solutions for their ease of use and cost efficiency.
What is Landline Phone Service?
Traditional landline phone services, also known as public switched telephone networks (PSTNs), will be immediately familiar to any small business owner. They are the analog systems that run via your local or regional telephone company’s traditional copper wiring.
To run a landline service, your business will need on-site private branch exchange (PBX) hardware. This is the hardware that allows you to create multiple phone extensions and enables system features, such as call transferring and extension directories.
Advantages of VoIP Phone Service
VoIP systems provide a feature-rich and technically advanced phone solution. They are easily setup, configured, and managed, and are usually a more economical option than traditional landline systems.
Small businesses that want the advanced functionality of a sophisticated phone system at a reasonable price, as well as businesses that want their remote employees to have access to the same phone system to present a single face to their clients, will be best served by a VoIP telephone service.
Cloud-based VoIP services have the added benefit of no maintenance or hardware (other than your phones, of course) to worry about. The service provider houses, maintains, and upgrades all of the technology for you, which means that your up-front costs are minimized and you’ll automatically have access to new features as they become available.
But perhaps the most significant technical advantage of VoIP services is their scalability. Landline systems are limited to the number of lines that you have connected and adding more means installing them and upgrading your hardware. However, because VoIP systems only rely on your internet connection, they allow for an unlimited number of lines. This drastically reduces your setup and maintenance costs.
Your ongoing costs will likely be less with a VoIP service as well. Because your voice is transmitted as data over the internet, the cost to operate the service is smaller than over the copper lines of traditional landlines and these savings are passed on to you. While it’s normal for both landlines and VoIP to include unlimited domestic calling in their plans, international call rates are significantly cheaper with VoIP. In our comparison of Verizon and RingCentral above, for example, international calls on Verizon’s landlines started at almost 30% higher per minute.
The technology behind VoIP services also means that they can offer features that traditional landlines can’t.
- Mobility. VoIP services allow you to use your mobile phone as an extension of your office phone, which extends your phone system to literally anywhere you’re located. You can have calls forwarded to you to receive them anywhere you are, as well as make calls and have them appear to come from your office phone number. This is a huge benefit for people who visit clients, such as sales or account managers, as well as remote employees.
- Portability. VoIP technology allows you to use any phone or even computer as your personal extension, which means that you’re not limited to making or receiving calls at your desk.
- Flexibility. Cloud-based VoIP services enable you to login to your account from your computer or smartphone app and manage your phone system on the fly, including how calls are routed and handled. For example, you can use the advanced routing features to setup a recurring schedule in which calls are forwarded to your mobile phone on evenings and weekends.
- Accessibility. Most VoIP service providers offer advanced accessibility features, such as having voicemails converted to text and sent to you by text message or email, which can be a particular benefit to the hearing impaired.
- Integrations. The same voice-to-text feature also means that your VoIP system can be integrated with third-party applications, such as CRM software. So, for example, when you receive an incoming call your CRM could automatically scan for the number and display any relevant data you have associated with it.
Russ Fordyce, Managing Director at Broadview Communications, spoke to this last point when he said that “VoIP solutions are continuously evolving and being enhanced. Now, for instance, the industry is moving towards a more unified communications approach or UCaaS, which combines a VoIP system with advanced telephony features, video conferencing, online fax, chat, toll-free and mobile and business analytic tools in one complete system.”
Disadvantages of VoIP Phone Service
Traditional small business phone systems have historically had a large advantage over VoIP phones from a call quality standpoint. However, due to increases in internet speeds and technology innovation among VoIP service providers, this is no longer the case.
The quality of VoIP calls is dependent upon the speed and stability of your internet connection. Because of this, one factor to consider is the amount of data you regularly transfer for other purposes, such as file transfers, audio or video streaming, etc. Most small businesses with a modern broadband internet connection will have ample bandwidth for multiple uses, but businesses in more remote areas or without a high-speed connection may still be better served by a landline phone system.
The VoIP phone system is also reliant on your electrical connection. Whereas a traditional landline phone system can often continue to operate during an internet or power outage, this is not the case with VoIP. However, many VoIP service providers can automatically route calls to a mobile phone or another backup number in the case of an internet or power outage.
Check out our VoIP speed test to see how your a VoIP phone service will likely perform with your business’ internet connection.
Are VoIP Phone Calls Secure?
Yes and no. VoIP phone calls can be intercepted or tapped, but this is true of mobile and landline phone calls as well. Phone companies, government, and law enforcement are able to listen in on your phone calls regardless of the technology you use — however, they require a warrant to do so.
Where VoIP phone services have an advantage is that the technology used to transmit the data also makes it easier to encrypt it. For example, Skype uses 256-bit AES encryption. This makes it harder for malicious individuals to intercept them.
Advantages of Landline Phone Service
Landline telephone services are a reliable and time-tested solution that every business will be comfortable with. They are stable, easy to maintain, and can function independently of power outages or internet connectivity issues that may affect VoIP services (while many phones require power to operate, the technology behind the phone line itself does not).
Landlines operate on a purpose-built network, which was designed for one purpose: telephony. And because it wasn’t built for any other purpose, it manages telephony extremely well. This means excellent call quality, nearly 100% uptime, highly private and secure connections, and the ability to scale and support large volumes of traffic.
VoIP technology was designed to operate on a data network, which means it can’t match traditional landlines in these areas — at least, not yet. So while VoIP technology continues to improve and narrow the gap between it and landline technology, there may still be some inherent compromises for you to consider alongside its cost savings.
Disadvantages of Landline Phone Service
The biggest disadvantage of landline technology is that the technology itself is obsolete. No further development or enhancements are planned for it, and there are plans to phase it out entirely in many areas of the world. This will also pose a challenge for repairs. Parts are relatively easy to come by now, but they will become scarce as the technology is replaced.
Compare this to cloud-based VoIP services, where your business benefits from its continuous technical enhancements and improvements and the service provider bears the full responsibility for any maintenance and repairs. And features like call transfer, intercom, call queuing, group ringing, and phone directories that come standard with most VoIP services will require additional, and costly, PBX hardware with a landline service. These costs add up quickly, especially when you factor in the cost of having a technician install and maintain it, making VoIP service a more economical solution.
The increasing prevalence of reliable high-speed internet connectivity is narrowing the last remaining gap that gave landline technology its remaining advantage. In fact, in our research for this article, one of the biggest challenges we faced was finding service providers who still offered traditional landline services for businesses — most are in the process of transitioning entirely to VoIP.
On the future of landlines, Fordyce said that they “are effectively dead.” This is because “using newer technologies means that [voice and fax communications] are more secure, cost-effective and flexible. For instance, with some providers, you can easily move from office to office or from your desk phone to your smartphone and still use the same phone number. And, the best providers make this seamless. You can’t do that with a landline.”
A Third Solution: Virtual Phone System
One other option to consider is a virtual phone system. While this may not be adequate for most small business’ needs, if you’re very small and your primary concern is to present a professional face to your clients then a virtual phone system may meet your needs.
Virtual phone systems are essentially a call-forwarding solution, where calls made to a main business number are immediately forwarded to the mobile or home phones of employees. These systems can include a variety of features, such as automated receptionists, voicemail, call forwarding, call screening, and online faxing. However, using a virtual phone system will mean that you’re still using your mobile phone plan’s minutes.
If you’re a very small business of only a few employees at most, especially if you don’t yet have a physical location for your business, then a virtual phone system such as that offered by Grasshopper may be a cost effective solution for you until you grow to need a VoIP system.
The Bottom Line
VoIP technology has advanced to the point where it’s no longer just an alternative to traditional landlines, but a complete replacement. A VoIP system can provide your business with additional features that weren’t previously available to you with a landline, a cloud-based service will relieve your business of the responsibility of managing and maintaining your system, and all at a reduced cost.