What Are Hosted Phone Systems All About? The Complete Guide

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Even though most business owners are familiar with the concept of cloud software and have already shifted some aspects of their operations to the cloud, hosted phone systems still need to be explained to many. A relatively new software for sales and customer success teams, VoIP and hosted phone systems make communication with colleagues and customers easier than ever.

Using a hosted phone system like Nextiva can greatly benefit small businesses looking to scale. But oftentimes people need help with how to set one up, what they entail, or exactly what use cases they have.

In this article, we’ll demystify hosted phone systems, explain how they work, and outline their main features to help you decide if a hosted system is right for your business.

What Are the Best Tools for Hosted Phone Systems?

The best hosted phone systems are typically provided by either a VoIP (Voice over Internet Protocol) or a Virtual PBX provider. We’ve tried dozens of VoIP providers and phone services for our businesses, and we’ve come up with three Golden Eggs—the best hosted phone services out there.

Nextiva is the best overall hosted phone service. It offers a robust—yet affordable—entry-level plan that includes unlimited calling, voicemail transcription, and a host of other features. Plans start at $20.95 per user per month for the Professional plan.

RingCentral is perfect for businesses of all sizes with its unlimited scaling potential and international calling. It’s one of the most user-friendly phone systems out there and scales up or down to fit every business’s needs. Test it out yourself with a free 14-day trial on any plan you choose.

If you’re a small business owner looking for an affordable way to make calls and send texts, Ooma is your solution. You can keep using your existing equipment, get set up in under 20 minutes, and save money with Ooma’s unlimited calling and SMS messaging plans. You can get started with Ooma for just $19.95 per user per month.

More Top Hosted Phone Systems

Although we like these three hosted phone providers the most, there are several other top-notch options out there. If you want to find the one that is right for you, you’ll need to evaluate your business and team’s needs and compare the features of each provider.

The best first step is to read our in-depth reviews of all the best hosted phone systems. We’ve tested the biggest providers out there and broken down their features, pricing, customer service, and more.

Click here to read our full reviews.

What Is a Hosted Phone System?

Put simply, a hosted phone system is a cloud-based phone system that you don’t need to manage or maintain on your own. Instead, it’s managed and maintained by the provider so you don’t have to worry about any hardware, installation costs, or technical issues.

Hosted phone systems are usually provided with specialized VoIP—or Voice over Internet Protocol—technology, which allows digital phone calls to be sent and received over the Internet rather than traditional phone networks. This means that you can use an existing broadband connection or Wi-Fi network to make calls, with no need for extra hardware like a PBX (Private Branch Exchange) system or a separate phone line.

Hosted systems also come equipped with lots of features that help businesses save time and money. They provide automated call routing, voicemail-to-text transcription, and even mobile apps so you can make calls from any device, anywhere in the world.

How Do Hosted Phone Systems Work?

The concept of cloud-based phone systems is relatively simple: you sign up for a plan with the provider, choose your features and hardware, configure your settings, and start making calls.

Your provider will provide you with an IP phone or VoIP adapter that connects to the Internet. This will enable you to make digital-based calls through their service. The providers also have web-based portals where you can configure your settings and manage your users.

The provider also hosts all of the features, like voicemail, automated attendant, etc., on their end, so you don’t have to worry about managing or maintaining any hardware.

You’ll also need to consider what type of support is offered by each provider—some offer 24/7 support, while others only offer limited support during normal business hours.

Screenshot from Nextiva displaying an infographic of hosted VoIP business phone system and their interconnectedness.

On a technical level, hosted phone systems use SIP (Session Initiation Protocol) to make and receive calls, as well as manage features like call forwarding and forwarding messages. This means that you don’t need a landline or even an app on your device—the provider will do all the work for you.

It all starts with a business network (LAN) connected to the Internet. That’s where you connect your IP phone, VoIP adapter, or softphone app. The service provider then assigns a unique identifier to each device and allows it to access the network.

When someone calls your number, the service provider routes the call to your device over the Internet using SIP protocol. On the other end, the caller’s device will use a similar protocol to place the call.

The service provider also handles all of your features like voicemail, automated attendant, and more. They’ll even handle outbound calls for you if you choose to use their services for that as well.

Hosted Phone Systems vs. PBX Systems: What’s the Difference?

If you’re considering a hosted phone system, it’s important to understand how they differ from traditional PBX systems.

Screenshot from Nextiva displaying an infographic of the processes for hosted PBX and IP PBX SIP trunking.

PBX systems—short for “private branch exchange” — are hardware-based solutions that have been around since the late 1970s. These systems require physical equipment like an onsite server and multiple lines coming into the office.

PBX systems are generally more costly and require a lot of technical knowledge to manage, but they do offer a couple of advantages over hosted phone systems.

  • Guaranteed connectivity: Because PBX systems use dedicated phone lines, you know your calls will always connect. For sales teams or customer service reps, this is an important benefit.
  • High-security features: PBX systems also come with advanced security features like encryption, which ensures that your calls are secure and private.

Hosted phone systems, on the other hand, use VoIP technology to make digital calls over the Internet. They don’t require any physical hardware and can be managed entirely through cloud-based portals. This makes them much easier (and cheaper) to manage than traditional PBX systems.

Hosted phone systems also offer more features than PBX systems, including call forwarding, voicemail-to-text transcription, and even mobile apps for making calls from any device.

What Are the Benefits of Hosted Phone Systems?

The benefits of hosted phone systems are numerous. Here are a few of the most essential.

1. Lower Cost

VoIP systems are cheaper than traditional telephone installations when you take into account the hardware and installation costs of a standard telephone system. You can also use equipment that you already own, like desk phones, headsets, and computers or cell phones, through softphone software.

Without the setup cost or need to purchase additional materials companywide, a hosted phone system can save your company money in the long run.

2. Increased Flexibility

By 2026, an estimated 40 million Americans will work remotely.

When it comes to hosted phone systems, employees don’t need to be in the same physical location to handle calls. With VoIP technology, multiple devices can access the system at once—meaning you could easily have employees in distant offices still able to answer calls or put customers on hold.

The flexibility of hosted phone systems also makes it easier for companies to scale up and down as needed. You can add or remove lines in a matter of minutes, making it easier to adjust for increases or decreases in business volume.

3. Enhanced Features

Hosted phone systems come with many enhanced features that can make your life easier. For example, some providers offer call forwarding and forwarding messages so you don’t need to rely on voicemail. You can also access the system from anywhere with a reliable Internet connection, making it easier to stay connected when you’re away from the office.

4. Improved Customer Experience

When customer success and sales teams can access the system from any location, they can provide a better level of customer service. With features like call forwarding, agents can answer calls quickly and address customers’ needs more efficiently than before. This helps build loyalty with your existing customers and improve customer satisfaction overall.

5. Greater Mobility

Screenshot from RingCentral displaying the global design team function on the system dashboard.

Hosted phone systems are especially beneficial for employees who need to stay in constant contact with customers. With mobile VoIP apps, you can make and receive calls on any device — even while on the move.

This makes it easier to stay connected and provide customer service anywhere, anytime. You can also use call forwarding to ensure that your team is always available when a customer needs help or assistance.

What Are the Potential Barriers to Adopting a VoIP System?

As with any new technological advancement, there are some potential barriers to adopting hosted phone systems. Here are a few of the most common:

1. Reliability

Hosted phone systems rely on having an Internet connection in order to make and receive calls. If your employees work remotely, they may not have access to a steady internet connection, which can affect the reliability of your VoIP system.

Relying on an internet connection also means that VoIP phone services might not work in the event of a power outage.

Although WiFi calling usually uses little bandwidth, it’s important to ensure that all employees have a reliable connection to take full advantage of your hosted phone system.

To monitor reliability, you can conduct a VoIP speed test to ensure that your Internet connection is running optimally.

2. Long Contracts

Some companies will lock you into contracts for at least a year, meaning you’re stuck with their services even if you’re not satisfied. Ensure that you read the fine print of any contract before signing so you know exactly what you’re getting into, and be careful when accepting deals like annual discounts.

3. International Fees

If you aren’t careful, your VoIP phone services could cost more than you initially expected. Many providers will charge extra fees for international calls, which can add up quickly if you have a lot of customers abroad.

What Features Should I Look for In a VoIP Provider?

While your specific business needs will be different from other companies needs, there are a few important features that all VoIP providers should offer:

1. Reporting and Analytics

Screenshot from RingCentral displaying a company's adoption and usage data.

Tracking employee productivity, customer experience metrics, and overall performance is important for any business.

Look for a provider that offers detailed reporting and analytics so you can measure the success of your VoIP system and make informed decisions about improvements or changes.

2. Easy Setup & Scalability

Choose a provider that can scale up or down with your changing business needs. Being able to add and remove users quickly will help you save time and money in the long run.

Think about it this way: if your company is growing, you don’t want to have to sign up for a new phone system every few months. And even if they aren’t growing, they don’t want to have to worry about a system that’s too big and costly for their needs.

3. Quality of Service

Choose a provider that offers a quality of service guarantee for voice and video calls. This will ensure that your calls are always crystal clear, no matter how many people are on the line.

Having dropped calls all the time can be very frustrating, so make sure that your provider is able to offer good VoIP quality.

4. Support & Training

Look for a provider that offers customer support and training to help you get the most out of their services. If your team is unfamiliar with VoIP systems, having access to customer service representatives who can answer questions will be invaluable.

You can also develop your own internal training program to help your team make the most of your hosted phone system. If you have a sales process, customer service script, or any other procedures that need to be followed, make sure your team is well-versed in them.

5. Security & Privacy

Most of your company’s private information will at least partially be discussed over the phone or via chat. If you don’t use secure VoIP services, this information may be compromised.

This is an especially big issue when dealing with private customer data such as credit card numbers, healthcare information, or other sensitive materials.

Make sure to choose a provider with secure, encrypted connections and strict privacy policies.

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