What is a PBX Phone System?

Private Branch Exchange Explained

Coworkers Conversing in a PBX
Jacobs Stock Photography / GettyImages

A PBX (Private Branch Exchange) is a system that allows an organization to manage incoming and outgoing phone calls and also allows communication internally within the organization. A PBX is made up of both hardware and software and connects to communication devices like telephone adapters, hubs, switches, routers and of course, telephone sets. 

The most recent PBXs have a wealth of very interesting features that make communication easy and more powerful within for organizations, and contributes in making them more efficient and in boosting productivity.

Their sizes and complexity vary, ranging from very expensive and complex corporate communication systems to basic plans that are hosted on the cloud for a two-digit monthly fee. You can also have simple PBX systems at home with basic features as an upgrade to your existing traditional phone line. 

What Does a PBX Do? 

As mentioned above, the functions of a PBX can be very complex, but basically, when you talk about PBX, you talk about stuff that does these things: 

  • Use of more than one telephone line in an organization, and 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. This saves the organization from having to pay for several lines, and allows all departments to be reached through one single phone number.
  • Allow free phone communication within the organization. 
  • Empower the whole communication with VoIP (Voice over IP), which has a tremendous amount of features and enhancements over traditional telephony, the most prominent being the cutting down of call costs. 
  • Ensure good interface with customers through features like call recording, voicemail, IVR etc. 
  • Automation of response to calling customers with IVR (interactive voice response) whereby the system can automatically direct users to the most appropriate line through voice menus. It is the kind of feature where, as a caller, you hear things like "Press 1 for the Finance Depart, Press 2 for complaints..."


PBXes changed a lot with the advent of IP telephony or VoIP. After the analog PBXes that worked only on the telephone line and switches, we now have IP-PBXes, which use VoIP technology and IP networks like the Internet to channel calls. IP PBxes are normally preferred due to wealth of features that they come with. With the exception of old already-existing but still-working-fine PBXes, and those chosen because cheap, most PBX systems used nowadays tend to be IP PBXes. 

The Hosted PBX

You do not always have to invest on the hardware, software, installation and maintenance of your in-house PBX, especially if you are running a small business and the cost of ownership prohibits you from benefiting from those important features. There are numerous companies online that offer you the PBX service against a monthly fee without you having anything but your telephone sets and router.

These are called hosted PBX services and work on the cloud. The service is dispensed through the Internet. Hosted PBXes have the disadvantage of being generic such that they cannot be tailored to your needs, but they are quite cheap and do not require any upfront investment. 

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