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Standard PBX

PBX Definition: Premise-based Definition of PBX
Definition of PBX System: Private Branch Exchange System. A PBX system, sometimes known as a phone switch or phone switching device, is a device that connects office telephones in a business with the public telephone network. PBX phones are phones or phone systems that utilize a PBX system. The initial central functions of a PBX system were to route incoming calls to the appropriate extension in an office, and to share phone lines between extensions. Over time, many functions have been added, such as automated greetings for callers using recorded messages, dialing menus, connections to voicemail, automatic call distribution (ACD), teleconferencing, and more.
Today, PBX phones are expected to handle a wide variety of duties beyond simple connection to the public phone system. The range of features offered by a PBX system varies, usually in proportion with the price of the equipment. Some of the main functions of PBX phones:
  • Present a single business number that gives access to all company employees and departments
  • Answer calls with a custom business greeting
  • Offer a menu of options for directing the call, such as connecting to a specific extension or to a department
  • Provide a directory of employee extensions accessible by inputting digits corresponding to employee first or last names
  • Evenly distribute calls to a department among available employees through Automatic Call Distribution (ACD)
  • Place callers on hold when they are waiting for an available department employee
  • Play music or custom messages whenever callers are waiting on hold
  • Take voice messages for any employee extension, for a department, or for the company in general
  • Allow transfer of calls between extensions
  • Conference multiple incoming calls with employee extensions
  • Provide detailed call records and real-time system management
Note that not all of these functions are available from every provider of hosted PBX services, just as they are not available in every PBX product provided by equipment vendors. It is up to the customer to determine what functions best suit company needs and arrange for the corresponding service. The hardest mainstream features to get in a hosted system are real Automatic Call Distribution (ACD) instead of simple hunt groups, flexible company directories, call transfers between extensions (or to an operator or an ACD queue), and real-time system monitoring. In addition, there are a host of other advanced functions that are needed in specific situations that only a few, or even one, providers have been able to make available.
Of course, not every one of these features is available in all PBX phones. The hardest feature to provide has been Automatic Call Distribution (ACD), and usually vendors charge a premium for products that include this feature. Other features that often get left out include integrated voice messaging, conference bridging for conferencing multiple outside calls, and detailed real-time system monitoring. Many times some of these features are not part of the base PBX system but can be purchased through add-on system modules.
Diagram & Operation
Image of a Hosted PBX Diagram
In a typical office environment, the PBX system connects multiple incoming phone lines to multiple telephone extensions. Basic PBX switches do little more than cross-connect these lines. As system price rises, functions are added. Some added features can be provided through software and/or firmware upgrades inside the basic hardware. For other features add-on modules are required.
Usually, the PBX device is a piece of hardware that hangs on a wall or mounts in a rack. Some type of patch panel is included that allows connection to internal and external telephone wires. Sometimes, PBX functionality is provided through software. In this type of system, a personal computer controls system operation and adapter cards and add-on modules provide connectivity.
Operation is fairly straightforward. Callers that want to reach someone in the company place their calls from any type of telephone. The call is routed through the Public Switched Telephone Network (PSTN) to company-specific lines leased on a monthly basis from a telephone company. The PBX system answers the call with a recorded greeting, plays a menu of connection options to the caller, and then routes the call to the appropriate employee extension or to a holding queue (ACD queue or hunt group) for a department, such as sales or support. In installations where the company wants calls answered by a person instead of a machine, the calls are first routed to an operator or receptionist who then forwards the call to the proper extension or department.
Calls transferred to an extension will ring at a particular phone, usually a desk phone somewhere in the office. If the extension owner picks up the phone the call is connected. If not, the call is usually transferred to voice mail.
When callers know what department they want but don’t have the name or extension number for a particular individual, they usually have the option to be sent to a holding queue to wait for the next available agent (employee) to take the call. Many low-end systems do not offer any type of holding queue, and callers must know who they want to speak with before they call. Other low-end systems send callers to a “hunt group” — a list of phone numbers to try and find someone available. Hunt groups usually have the drawback that every extension number must be tried, in the same order each time, in an attempt to find an employee that can take the call. In such cases, the first extension on the hunt list usually gets swamped with calls while other extensions are used only when there is a heavy load. Another disadvantage of hunt groups is the time it takes to try each extension to find one that isn’t busy and has someone ready to pick up the phone.
Higher-end PBX systems employ a variety of techniques to assure that calls to a holding queue are answered more efficiently. The most prevalent approach is through the use of Automatic Call Distribution (ACD) queues. A system with ACD queuing keeps track of which employees are already taking calls and how long it has been since each person finished prior calls. Incoming calls are put into the queue waiting for the next available employee and then routed automatically to the employee that has been off the phone the longest. ACD queuing evenly distributes calls to employees while insuring a minimum wait time for each caller on hold. The ACD queue feature can add considerably to the cost of the PBX system but is often a major factor in customer/caller satisfaction. Serious businesses usually need the advantages of true ACD queuing.
Strengths of a Hosted PBX
PBX hardware (PBX phones) is a mature technology that offers many benefits for the right type of application. As a minimum, multiple extensions in a single office can share the cost of incoming phone lines. It is not necessary to pay for a separate phone line for each extension. Capital costs for the equipment can be amortized and depreciated over time. Even though system management and maintenance continues to add cost after installation, today’s systems are more robust and easier to manage than they have been in the past. Incoming calls are typically free or very low cost. In more expensive systems, some level of system expansion is allowed for scalability. Businesses that can reliably predict their needs can usually find a cost-effective system. As features and functionality continue to be added, a PBX device can add productivity to an office environment. Almost any feature that can be imagined for telecommunications can usually be found somewhere among the many vendors and offerings in this space – as long as customers are willing to pay the associated price.
Weaknesses of a Hosted PBX
The biggest problems with standard PBX systems revolve around costs, flexibility and adaptability. Costs are problematic in two areas. First, the up-front cost for getting a system up and running can be very high. Industry averages show that the typical cost for a PBX system ranges from $500 to $2,000 per seat (user), including the cost of the equipment, installation, and wiring. At the lower end of the spectrum, the equipment offers limited features and usually limited scalability. Higher priced systems include advanced functionality, such as Automatic Call Distribution (ACD), skills-based call routing, and other sophisticated features. Many smaller businesses find that they can not afford the cost of a first PBX system and so continue to take calls on individual phone lines, without establishing a central business identity.
The second cost issue is ongoing maintenance and support. As PBX equipment continues to add functionality, there is an increasing need for highly trained support people to maintain the hardware and software, roll out system upgrades, and manage system use. Ongoing support and maintenance costs are predicted to run at about 1% of the cost of the equipment each month. For example, a $20,000 PBX switch, which would provide service to 10 to 40 employees, depending on system features, would typically cost about $200 per month for maintenance.
As with many devices based on hardware and software infrastructure, the other major problem with PBX equipment is flexibility. The biggest problem in this area is scalability. Most PBX hardware is limited in its ability to add both internal and external lines and to support more users. Low-end systems are especially difficult in this regard, often forcing small businesses to overbuy in order to have enough capacity for the business they hope one day to have, or to pay only for current needs, knowing that they may have to throw away their new equipment when the business grows. Recent industry surveys indicate that many small businesses buy a new PBX system every two years in order to accommodate business growth.
Flexibility is also an issue when it comes to features. While almost any feature can be bought, many times important features can not be added to an existing system, forcing businesses to pay for new systems in order to get needed features. In addition, features that can be added are often significantly more expensive as add-ons than when they are included in the original purchase.
Adaptability has become a more important problem as the business environment continues to evolve. PBX equipment was originally designed around the idea that users (employees) would be centrally located inside an office. Today’s mobile environment has created problems with this model. Increasingly, business users want to receive calls on cellular phones when they travel, on alternate phones when they work in a different office, or on home telephones when they telecommute. As can be seen from basic PBX architecture, routing calls inside a pre-wired office is easy, but sending calls back out to a different phone is much more difficult. While forwarding a call back out to the telephone network can be done, the implementation is often clumsy and limited compared to the call forwarding and follow-me calling of alternatives, such as hosted PBX systems.
Many companies today want to have a completely distributed workforce in order to save office costs. The “virtual office” concept works for many companies, ranging from small businesses that are not ready or don’t need to establish a central place of business to very large service organizations that employ telecommuters as a matter of course. It is difficult and expensive to make standard PBX equipment work for these environments.
Typical up-front costs for PBX equipment range from $500 to $2,000 per user, depending on the features and functionality included in the PBX system. Higher end systems offer more advanced features, such as Automatic Call Distribution (ACD), overflow queues, and skills-based call routing. In addition, these systems are usually more expandable, with space to add expansion modules within certain limits. Up-front costs include costs for the PBX system, telephones, and internal wiring.
Ongoing costs for these installations include the cost of incoming phone lines, system support and maintenance, and per-minute charges for inbound calls. Typically, inbound calls are delivered at little or no cost for “local” numbers, and a charge of 4 to 10 cents per minute for incoming “toll-free” calls. (The calls are toll-free to the caller and paid for by the business receiving the calls.) The cost for incoming business telephone lines vary widely, but usually fall between $10 and $20 per month, not including taxes and other government-mandated fees. Often, features are added that increase the cost per line. Since premise-based PBX equipment allows sharing of phone lines across multiple extensions, cost analysis requires a prediction of the average number of extensions that should be associated per incoming line. Typical system pricing estimates one incoming line for every four extensions, but high-use environments may need more lines. System maintenance and support can be predicted as being about 1% per month of the initial system cost. These expenditures cover in-house or outsourced personnel to administrate, upgrade, and update the system.
Putting these costs together gives the following cost examples for standard premise-based PBX systems:
typical costs for hosted pbx systems

5 User System 40 User System
Up-Front Costs None None None None
System & Installation $6,250 $50,000
Monthly Costs Per Month Per Year Per Month Per Year
Telephone Lines $ 30 $ 360 $ 150 $ 1,800
Monthly Hardware Payment $ 52 $ 625 $ 417 $ 5,000
Maintenance $ 63 $ 750 $ 500 $ 6,000
Per Month Per Year Per Month Per Year
Total Annual Costs $ 145 $ 1,735 $ 1,067 $ 12,800
Assumes one incoming phone line per four extensions, rounded up. Uses average per-seat cost between $500 and $2,000, or $1,250 per seat for system and installation. Other assumptions per preceding paragraphs.
The above table makes the assumption that the businesses want callers to pay for the inbound calls, rather than publishing a toll-free number. Some companies prefer to remove call cost from consideration for callers, and provide toll-free calls to their business. For these companies, additional costs must be calculated. The typical rate per minute for a toll-free call runs from about 4 cents to about 10 cents. The number of minutes will vary widely between businesses, but is usually proportional to the number of employees receiving calls since more incoming calls usually equates to more employees to answer the telephones. This discussion will estimate 200 inbound toll-free minutes per month per employee. This number is too low for heavy-use call centers, but about right for a typical service or product oriented business. Since companies with higher use will typically get better rates for minutes, we’ll use 8 cents per minute for a 5-user company and 5 cents per minute for a 40-user site. With this methodology, we can predict new annual costs for this type of usage:
typical costs for virtual office hosted pbx systems

5 User System 40 User System
Up-Front Costs $ 62,250 $ 50,000
Monthly Costs Per Month Per Year Per Month Per Year
Telephone Lines $ 30 $ 360 $ 150 $ 1,800
Monthly Hardware Payment $ 52 $ 625 $ 417 $ 5,000
Monthly Hardware Payment $ 63 $ 750 $ 500 $ 6,000
Monthly Costs Per Month Per Year Per Month Per Year
200 Min/User/Month $ 100 $ 1,200 $ 500 $ 6,000
Per month Per Year Per month Per Year
Total Annual Costs $ 245 $ 2,935 $ 1,567 $ 18,800
From these figures, we can see adding toll-free service costs about $100 per month for the smaller company and around $500 per month for the larger firm. Whether the value provided is worth the extra expense depends on the company and its type of business. For more information about PBX costs, see: