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Hosted Telephony: What Is It and How Does It Work?

According to reports, 59% of customers prefer contacting businesses through a phone call. Your staff may also need to communicate with each other ― especially when they’re out of the office. Therefore, your business most likely needs a smart telecommunication system. 

However, traditional setups are expensive to install and maintain. Instead, your business can use a hosted phone system. This setup is cheaper to install and offers more features than the traditional system. 

This blog will explain the complexities of this communication system and how it works.

Hosted Phone System Explained

Also known as a cloud phone system, this communication setup uses your internet connection to connect calls. In this context, ‘hosted’ refers to when a third-party company offers a service by having the hardware on its premises. Therefore, these telecommunication service providers ‘host’ your communication on their own equipment.

Usually, businesses use this setup to connect calls using an off-site private box exchange. However, there’s also a hybrid version that uses an on-premises private box exchange to make calls online.

Due to the ease of set-up, scalability, and low cost, this system is accessible and beneficial to small or growing businesses with remote staff. Moreover, you can use it both for internal and external communication, allowing your staff to collaborate on projects.

The Types of Hosted Telephone Systems

The Types of Hosted Telephone Systems

Generally, there are these two systems which differ based on equipment:


A cloud-hosted system refers to when a service provider operates a Voice over Internet Protocol (VoIP) to connect your calls through an off-premises or virtual private box exchange. Through an internet connection, they can also offer other telecommunication features. 

Since the third-party provider handles the hardware, you no longer need to maintain or update it. Nevertheless, you still have access to unique phone logins through session initiation protocol (SIP) technology.

SIP Trunking

Session initiation protocol trunking is a hybrid option that allows you to use the private box exchange you already have yet make calls over an internet connection. With this set-up, you no longer need your telephone lines, yet you gain an added layer of functionality. Moreover, it will allow you to maintain some functionality such as rerouteing calls when your private box exchange malfunctions.

However, this system may require you to purchase equipment that’s compatible with this system. Internal IT experts are also required to maintain and upgrade your private box exchange.

How Does a Hosted VoIP Phone System Work?

When you use this system, the service provider uses your internal internet network to offer calls and other communication features. More specifically, when you receive a call through this system, it goes through the following process:

  1. Service Provider Receives the Call: The first step in making a call through this system is to go to your service provider. 
  2. Transform the Call: After your third-party company has received the call, they’ll transform the caller’s voice into digital packets. 
  3. Send Digital Packets: Once the service provider has transformed the call, they’ll send these packets through your internet connection. 
  4. Receive Digital Packets: Finally, your device receives these data packages, and your device converts it back into sound that you can hear. Then, when you speak, it goes through the steps above to reach the caller.

The Features of Hosted Telephony

This telephone system offers a variety of services beyond calls. Service providers can offer these features because an internet connection allows them to transfer media other than audio, such as video. 

Here are features you’ll access through this system:

  • Video Conferencing: This system allows you to make video calls with or without external conferencing software.
  • Voicemail Transcription: You’ll be able to receive your voicemails as messages in your inbox.
  • Call Recording: You’ll be able to record your calls for analysis and quality control or even to use them as notes staff can access to facilitate their work.
  • Call Analytics: With this system, you can analyse your calls to verify your staff’s efficiency. In addition, you can use this data to identify problem areas and develop solutions.
  • Call Routing: Through auto attendants or an interactive voice response, this system allows you to route calls to the specific staff that can best attend to your customers.
  • Messaging: You can send instant messages and emails through this system.
  • Application Integration: If your business uses software to manage your communication, such as emails, you can integrate these applications into this system. Plus, you can integrate software with other functions, such as cloud storage or sales platform, to streamline workflow.

The Advantages of Hosted Telephony

The Advantages of Hosted Telephony

This telecommunication system has the following advantages:

Cost Savings

The first advantage of using this system over the traditional option is that it’s cheaper. According to reports, your business will spend 30% – 50% less on this system. This lower cost comes from the fact that you no longer need to maintain or upgrade your traditional system. Moreover, internal IT staff can easily solve the most common issues. So, you won’t need to hire a voice-over-internet protocol expert. Plus, you won’t need a receptionist since you can use an auto attendant.

Simple Installation

The system has a quick and inexpensive installation. You won’t even need a professional to set it up if you select the cloud-hosting option. Plus, you can use it with laptops, tablets , and phones, eliminating the need to purchase compatible hardware.

Increased Scalability

Lastly, this system is scalable. Since you can select a package that fits your staff size, you’re able to guarantee communication for your business even as it grows or relocates. Meanwhile, if you used a traditional system, your on-premises hardware would limit the number of phone lines you have access to.


Now you know that a hosted phone system is a telecommunication system that uses your internet connection. It may also use your private box exchange. Whether you opt for on-premises equipment or not, this system is an inexpensive, scalable, and quick installation. Moreover, it’s a low-cost option since you don’t need to maintain or upgrade the hardware.

Through voice over internet protocol and session initiation protocol, this system gives you access to phone calls. Plus, it offers a variety of modern features such as call analytics, video conferencing, and voicemail transcription. Therefore, if you desire these functions, keep this option in mind.