Internet, Networking, & Security Home Networking 70 70 people found this article helpful What Is a PBX Phone System? Private branch exchange systems explained by Nadeem Unuth Freelance Contributor Nadeem Unuth is a former freelance contributor to Lifewire who specializes in information and communication technology with a focus on VoIP. our editorial process LinkedIn Nadeem Unuth Updated on December 04, 2019 Home Networking The Wireless Connection Routers & Firewalls Network Hubs ISP Broadband Ethernet Installing & Upgrading Wi-Fi & Wireless Tweet Share Email A PBX (private branch exchange) system allows an organization to manage incoming and outgoing phone calls, as well as internal communication. A PBX is made up of both hardware and software that connects to communication devices such as telephone adapters, hubs, switches, routers, and telephone sets. PBX Functions Modern PBXs have a wealth of management features that make communication easy and more effective within organizations, boosting productivity. Their sizes and complexity vary, ranging from very expensive and complex large-scale corporate communication systems to basic plans that are hosted on the cloud for a low monthly fee. Simple home-based PBX systems offer basic features as an upgrade to existing traditional phone lines. Bhavesh1988 / Getty Images The functions of a PBX can be very complex, but these are the essential features: Use of more than one telephone line in an organizationManagement of outgoing and incoming callsSplitting of one single phone line into several internal lines, which are identified through three- or four-digit numbers called extensions, and switching calls to the appropriate internal lineInternal phone communicationsVoIP (voice over internet protocol) calling, which has a tremendous number of features and enhancements over traditional telephony, the most prominent being the cost savings Quality interface with customers through features such as call recording, voicemail, IVR (interactive voice response), etc. Automated responses, which automatically direct users to the most appropriate lines through voice menus A PBX system allows all departments of an organization to be reached from a single phone number. This saves the company money because it requires only a single phone line. The IP-PBX PBXs changed a lot with the advent of IP telephony (VoIP). The newer IP-PBXes use the internet to channel calls. IP-PBxes are usually preferred because they offer a wealth of features. With the exception of old, already-installed-but-still-working PBXs and those chosen because they are inexpensive, PBX systems nowadays tend to be IP-PBXes. The hosted PBX Today, you don't have to invest in the hardware, software, installation, and maintenance of an in-house PBX, especially if you are running a small business and the cost of ownership would be greater than the benefits. Numerous online companies now offer hosted PBX service for a monthly fee that doesn't require you to pay for hardware other than your telephone sets and router. These services are cloud-based and delivered via an internet connection. Hosted PBXes have some disadvantages — they're more generic, with fewer options to tailor the system to your precise needs — but they are quite cheap and don't require an upfront investment.