What Is a PBX Phone System?

Private branch exchange systems explained

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 hardware and software that connects to communication devices such as telephone adapters, hubs, switches, routers, and telephone sets.

PBX Functions

Modern PBXs have several management features that make communication easy and more effective within organizations, helping boost productivity. Their size and complexity vary, ranging from expensive and complicated 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.

Operator of call center working

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The functions of a PBX can be complex, but these are the essential features: 

  • Use of more than one telephone line in an organization.
  • Management of outgoing and incoming calls.
  • Splitting 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 line.
  • Internal phone communications.
  • VoIP (Voice over Internet Protocol) calling, which has a 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, and IVR (interactive voice response).
  • 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.


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 many 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 run a small business and the cost of ownership would be greater than the benefits. Numerous online companies 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 cheap and don't require an upfront investment.

  • What is an IP-PBX phone system?

    An IP-PBX phone system stands for Internet Protocol Private Branch Exchange. This system combines the functions of a PBX with VoIP calling to relay audio and video over the internet. IP-PBX systems can operate on a physical in-house setup that uses a local area network (LAN) or a cloud-based service handled by a hosting provider.

  • What is a digital PBX phone system?

    A digital PBX is another common term for IP-PBX or VoIP PBX. Digital/IP-PBXs differ from analog/traditional PBXs, which use the landline system connected to the Public Switched Telephone Network (PSTN) to relay calls. In contrast, digital PBX phone systems use internet connectivity and software, whether set up as on-premise or hosted PBXs.

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