Picking a Hosted PBX Provider

Selecting a phone system may be the most important technology decision most small businesses make; choosing the wrong one can spell disaster. One relatively new and increasingly popular option, using a hosted PBX (Private Branch eXchange) solution, offers a number of benefits and can also mitigate some of those risks.

With a hosted PBX you don’t have to invest in an on-premise phone system, although you may have to buy new IP (Internet protocol) phone sets. That said, you still need to take great care when selecting a hosted service provider.

The PBX, an enterprise-grade IP phone switch, sits at the service provider’s data center, connected to your office either by a dedicated data link, typically a T-1 line, or over a high-speed Internet connection.

You get all the features of a big-company PBX – voice mail, auto attendant, sophisticated call routing, find-me-follow-me features, unified communications (presence, voice mail delivered as e-mail, etc.) – without having to invest tens or hundreds of thousands of dollars in a system of your own. 

Instead, you pay the service provider a monthly fee per extension, typically ranging from $30 to $70.

The fact that capital costs are greatly reduced, an attraction on its own for many companies, also means that if you choose poorly for whatever reason, it will be somewhat easier to recover from the error – you can simply move to a different service provider.

Still, it’s obviously better to do the due diligence and make the right decision from the start. Here’s how to go about it.

Is Hosted PBX Right for You?

First question to ask: is a hosted solution really right for my company?

David Cole, president of Data Management Services Inc., a New Jersey-based company that provides telecom consulting and also resells several hosted PBX solutions, believes companies with fewer than 50 employees have most to gain.

Smaller companies, Cole pointed out, are less likely to have in-house IT people able to make good decisions about buying a system and then managing it after it’s installed.

“With [a hosted solution],” he said, “you get all the functionality of a PBX that might be implemented by an enterprise, but you don’t have any of the maintenance headaches, or any of the overhead of trying to program it.”

Phone Service Anywhere

Companies with employees that travel a lot or work from home or satellite offices also benefit more from using a hosted PBX because they can use all the features of the PBX anywhere they have access to the Internet.

You can plug an IP phone into a network router or use a softphone – a piece of software running on an Internet-connected computer with a telephone headset – and access the hosted system just as if you were in the office.

Calls to your company’s main number or your direct in-dial (DID) number ring at the phone wherever you’re connected. You can call colleagues using four-digit dialing and transfer calls to other extensions – from anywhere you’re connected.

And when you make a call from a remote location, it appears to the party at the other end as if you’re calling from the office. “I’ve found that small business owners especially like the idea of being available without being in their offices,” Cole said.

It’s also easier for highly distributed companies to manage a hosted phone system because they can control all the user-configurable features using a simple browser-based interface from an Internet-connected computer anywhere.

Companies with multiple offices stand to benefit more because with most hosted PBX solutions, calling between offices, even if they’re widely separated, is charged as local calls, not long distance. This can be a significant saving for some firms.

Making the Business Case

Ultimately, you need to compare the savings in capital costs and, possibly, long distance calling, against the long-term costs of using a hosted solution – because you never stop paying for a hosted PBX service.

How that calculation works out depends on a few variables – including how much intra-company long distance calling you expect to do. For example, how long would you expect to keep a phone system if you purchased one?

Some companies amortize such purchases over five years. Others, especially those that anticipate needing to trade up to a bigger system or upgrade to a more feature-rich system, might amortize over three years.

How much would you pay for management and maintenance if you bought a system and managed it at your own facility? Many small firms have to hire a consultant to do regular maintenance and provide support. So you also have to factor in the cost of outsourced IT help, or of hiring IT staff.

Not for Everyone

Some companies, Cole said, probably shouldn’t go with a hosted IP solution, however compelling the economic business case. IP voice, he noted, is still “new technology,” and compared to traditional telephony, it’s still marginally less reliable and harder to troubleshoot. “You just can’t guarantee it will always be up and running and perfect.”

Equipment vendors who have been selling IP phone systems for well over a decade and service providers that offer aggressive service level agreements (SLAs) guaranteeing uptime might dispute this, but Cole’s point is more about buyer perceptions.

Companies that view telephony as mission critical and have a low threshold for even momentary disruptions to service or occasional problems with voice quality probably should think twice about going with IP voice at all, and especially a hosted solution.

“With some customers, I just don’t feel right recommending VoIP,” Cole admitted.

Choosing Wisely

Next question: which service provider? Most phone companies and many small start-ups now offer hosted PBX solutions, so there are lots of options, including national, regional and local players.

In terms of PBX features, service providers vary little, Cole said. This is because almost all of them use server software from one of two main competitors – Broadsoft Inc. and Sylantro Systems Corp.

Some may offer nice-to-have extras, such as the ability to integrate the phone system with Microsoft Office Outlook – so that you can receive voice mails as audio attachments to e-mails in Outlook, for example.

Others may configure some features slightly differently or provide more or fewer configuration options, Cole said. But all provide the same basic phone functions. One important differentiator for service providers is how the company connects – or is willing to connect – your office to its data center.

Making the Connection

Some providers can and will support customers either over standard cable or DSL high-speed Internet connections or over dedicated T-1 lines. Others, mainly the bigger companies, will not support customers over Internet connections.

This is important because T-1 lines are expensive, about $500 a month and sometimes as much as $600 to $700. Very small companies or those with small call volumes may not be able to justify that expense, especially if they already have an under-utilized high-speed Internet connection that could be used for voice.

Service providers that don’t allow customers to connect over the Internet argue, rightly, that they cannot guarantee call or connection quality when calls travel over the public Internet. Over a dedicated connection, congestion on the Internet can’t interfere with optimal transmission of voice.

A dedicated connection also reduces the chances that hackers could mount denial of service attacks against your phone system, or hack in and use your system to make long distance calls, Cole said. Some service providers – again, typically the larger, better established players – also won’t provide support to customers if they’re connecting remotely over the Internet.

Connecting remotely – which as we saw, is one of the key benefits of hosted solutions – will always work, Cole stressed. “But if you’re having issues, these companies just won’t provide you with technical support.”

If you need to be able to connect to the phone system over the Net, either from your own facility to save money or when working remotely, find a provider willing to fully support that arrangement. It will probably be one of the smaller operators.

Size is Important

The size and scope of the provider’s operations is an important differentiator for other reasons as well. Smaller operators are generally apt to be more flexible in how much they’re willing to customize the service for clients, Cole said. Bigger companies typically don’t like to deal with exceptions.

If your company is small and local, a small, local provider that offers more personalized and customized service might be a good bet. On the other hand, if you have offices around the country or region, you should probably choose a larger, broader-based provider that can deliver optimal service everywhere, Cole said.

For one thing, smaller, geographically limited operators may not be able to give you telephone numbers with the area codes and exchanges you want in markets where they don’t have a presence. This can be important if your branches in those places are local in focus and you want them to appear local.

Pricing Formulas

How the provider prices the hosted service is another key differentiator. A very few providers – Primus Telecommunications Inc. is one – bundle service and IP phone sets for one monthly, per-seat price. Prices from those vendors are generally at the high end of the range, but they save you having to buy phones at a cost of from $40 to $200 each.

All providers offer free unlimited local calling. And most provide free “on-net” calling – you don’t pay for calls to your other offices on the provider’s network or, in most cases, to the provider’s other customers.

Some also bundle in a long distance package with a certain number of free minutes per month. This is obviously desirable if long distance calling is a big part of your traffic, but you need to carefully compare long distance packages and rates.

Some providers also base pricing on the length of the contract – the longer you commit to using their service, the lower the price. Choosing a long-term contract may seem like a good idea, but not if it locks you in to an unsatisfactory service.

Due Diligence

Outsourcing any vital business service ultimately comes down to establishing a trust relationship, which is why many small businesses find it easier and more reassuring to choose a larger, well-established provider, and consultants often recommend it.

But there are other ways to establish a comfort level with a prospective outsourcer. One big concern with hosted PBX services is reliability. Can you count on the provider’s system always being available?

If the company’s data center goes down, or its connection to the Internet backbone or its connection to your office fails, you lose phone service. Ask what kind of redundancy the provider has in place – backup servers that automatically take over if one fails, alternative network routes. And ask for references.

“When you’re looking at [hosted PBX] providers, especially less recognizable names, doing the due diligence and getting references is vital,” said consultant Jayanth Angl, a senior research analyst at Info-Tech Research Group. “In such a competitive market, they should be able to provide references.”

Contact the references, Cole said, and ask them about call quality, the provider’s up time record – how often, if at all, the system was unavailable – and the company’s responsiveness to trouble calls.

You really want local references because the provider’s service may be different in different markets depending on the quality of its network and infrastructure in each area.

If a company can’t provide local references but you still think it’s the best provider, insist that a bail-out clause be written into the contract that allows you to discontinue the service after 30 or 60 days if you’re not satisfied with service.

Any contract for hosted PBX service should also include a service level agreement (SLA), a kind of guarantee that the service will always be up and running. It should include financial penalties against the provider if the number of minutes of reported outage reaches a certain threshold. This provides a keen incentive for providers to ensure their systems are bullet proof.

Cole cautioned, however, that there are ways service providers can weasel out of penalty clauses, including blaming the larger network providers from which they buy capacity.

Also, no hosted PBX provider will guarantee call quality, and those are the problems customers are most likely to experience – echo on calls, cellular-like drop-outs and noise. Not as damaging as complete outages, but unwanted nevertheless.

This is not to say that hosted PBX services are some kind of wild west show, Cole said. Most are very reliable and call quality problems are rare. You just need to make sure you pick a good provider, and one that’s right for your needs. It’s not rocket science, just a question of doing your homework and asking the right questions.

Based in London, Canada, Gerry Blackwell has been writing about information technology and telecommunications for a variety of print and online publications since the 1980s.

This article was first published on SmallBusinessComputing.com.