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Hosted phone systems: What you should know when shopping

Max Noxon

Solution Architect

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The days of the traditional phone system that takes up a ton of room in your office’s server closet are numbered—and no, that’s not a threat.

The simple truth is that business needs have changed. If you have remote employees who aren’t all in your office, then your telephony solution needs to support that. The antiquated hardware-based telephone system no longer fits that bill.

And what about video conferencing? And texting or Instant messaging? A good telecommunications system today has to go way beyond just making phone calls.

So what exactly do hosted phone systems have to do with this? And what sorts of benefits can they bring to your business communications?

Bonus question: Why are businesses now increasingly looking toward UCaaS systems, in particular?

Having been in the telecommunications industry for, oh, let’s just say over a decade lest I age myself too much… I’ve got some answers to these questions—and also some questions you may not have considered if you’re thinking about a hosted phone system!

Let’s get into it.

What exactly is a hosted phone system?

Put simply, hosted phone systems are just phone systems that you don’t have to store at your office or HQ. They’re “hosted” by your business phone service provider and use an Internet connection rather than physical phone lines to place calls. That means that they don’t need a lot of hardware to function—in fact, they can work with nothing but your company’s mobile devices.

So, where’s the phone system, you might ask? In the cloud.

Businesses that use hosted phone systems connect to them via their service provider, who is responsible for handling the system’s servers. Those servers are located at data centers (meaning you don’t need to worry about things like upkeep and support—your provider will manage all that).

Today, every hosted phone system uses Voice over Internet Protocol (VoIP) technology, which is why they’re sometimes also called VoIP phone systems. VoIP services are especially popular with remote and hybrid teams, understandably, because they tend to need that level of global flexibility.

💡 Fun fact:

VoIP, UC, UCaaS, hosted phones, IP-PBX, co-located phone systems… These terms are often used synonymously. Think of these like cars from different brands. Yes, they all have doors and wheels and safety features and MPG ratings, but the quality and delivery will vary between each one.

Types of hosted phone systems and their terminology

There are a few different terms you’ll typically hear when people talk about hosted phone systems.

There’s “hosted PBX,” which is a more evolved version of traditional hardware-based PBX that doesn't require you to store the equipment and hardware in your office or have dedicated server closets. (Again, your provider would store that for you—hence “hosted.”)

It’s not the most advanced out of the different types of hosted phone systems, and beyond the location of your phone system equipment, there isn’t really a difference in the technology with hosted PBX (versus having that same PBX plunked into your building).

Today, some hosted phone systems have evolved further to become cloud-hosted phone systems (aka. virtual phone systems). This is a kind of VoIP-based system that lives in the cloud, and can be connected to any device. It’s a more flexible and remote-friendly approach compared to traditional hosted PBX, and works on a variety of devices like computers, cell phones, and even your typical phone handsets.

👉 Dialpad tip:

Learn more about cloud PBX, IP PBX, virtual PBX, sip trunking, and more in this VoIP vs PBX guide.

But the most versatile type of hosted phone system? It’s technically not a phone system! It’s a UCaaS (Unified Communications as a Service) solution—though yes, it does come with a built-in cloud phone system.

One reason why UCaaS systems are so popular today with businesses is because it lets you communicate in ways other than just phone calls. A good UCaaS solution will let you have video meetings and even send instant and SMS/MMS messages, all from the same desktop or mobile app:

Sending an SMS from Dialpad app blog size

In other words, if you use these other channels on a daily basis (and are using a bunch of disparate tools to do so), then you might want to think beyond a hosted phone system to cover that range of business communications.

UCaaS is what you should be looking at.

👉 Dialpad tip:

A good UCaaS provider like Dialpad owns its own data centers, meaning that your provider directly takes care of all maintenance. As a result, you never have to hire external maintenance staff if there’s a problem, saving you even more money.

MORE: The advantages of UCaaS over on-premises PBX

You might be wondering whether it’s really worth the effort of upgrading to a hosted phone system—or better yet, a UCaaS platform. Here are five major advantages compared to legacy solutions like on-premises PBX systems.

1. More: Cost-efficient

While you can use handsets and other types of hardware with your hosted phone system, it’s also compatible with software like softphones. Your employees can keep using whichever pieces of hardware they’re already familiar with when you make the switch.

Additionally, you don’t need to install costly hardware to use a hosted phone system. The result is massive cost savings compared to copper wire-based private branch exchange (PBX) systems.

2. More: Future-proof

Hosted phone systems are compatible with both modern hardware and software, ensuring that your company’s telecom system is as future-proof as it can be.

Because UCaaS is a constantly evolving product, and not a “fixed asset” like more traditional phone systems, you get the benefits of new features, tweaks to existing ones, faster integration with new tools and the ability to do some more custom work through APIs.

3. More: Scalability

Thanks to the fact that hosted phone solutions aren’t based around hardware, they’re highly scalable and can grow with your business easily.

That’s especially useful for businesses that are looking to scale up in the near future, or who might need to scale for short periods (like holiday sales). Startups, quickly-growing small businesses, and enterprises hoping to expand soon all fall under that description.

It also means you don’t pay for what you don’t use. With traditional PBX, you had to buy a system with a “capacity” that had a fixed limit. So to protect yourself, you had to buy more than what you needed. This isn’t the case with UCaaS, where you pay as you go for just what you need.

👉 Fun fact:

See how ClassPass, which has hundreds of employees around the world, sets up new employees on their phone system—in minutes.

4. More: Flexible for remote and hybrid teams

There’s no question about it now—remote and hybrid work is on the rise, and it has been for many years now.

What this means for businesses: Being able to collaborate from anywhere isn’t just a nice-to-have anymore. It’s essential.

And few things support remote flexibility the way hosted, cloud-based solutions do. They ensure your telephone network isn’t centered around physical wires and other hardware, but instead around access to the Internet.

In other words, with hosted solutions, your remote teams have just as much access to your phone system as their on-site colleagues. In fact, you could argue that this is one thing that UCaaS is without a doubt better than hosted phone systems at, because when you’re remote, you’re probably going to need to have video meetings and send instant messages a lot more. Traditional phone systems can’t give you that.

👉 Did you know?

Small businesses and enterprises across a range of regulated industries like healthcare, law, and insurance are using Dialpad. We’re HIPAA-compliant, GDPR-compliant, and there’s a lot more—but you can get more info on our security standards here.

5. More: Versatility by design

On that note, even if you’re not a fully remote team right now, if your business communications go beyond just phone calls, then you’ll need a unified communications solution that incorporates all your communication channels into one platform.

It makes your workflows more seamless, boosts productivity—and it should be (well, Dialpad is) compatible with regular office phones too, if you’re still using those.

In other words, a UCaaS system is in almost all cases a better alternative since it has a business phone system built-in along with a much wider range of functionality and flexibility.

Okay, I’m ready.. Am I missing anything before I make the switch?

Before you make the leap to either a hosted phone system or UCaaS solution, there are a few things that people often forget about—so let’s take a look at them now.

Robust Internet, network and Wi-Fi

On-premises PBX systems have voice lines delivered to them, usually at your office. To use a UCaaS solution, you need to have a robust Internet connection with enough capacity. It sounds obvious, but it’s easy to forget that a patchy Internet connection can mess with your phone system if it’s hosted in the cloud.

Because systems like Dialpad work on any device (tablets, phones, and laptops), the more people will start taxing your company Wi-Fi. Making sure your network has capacity internally is just as important. That’s an important consideration, especially for larger businesses who haven’t invested in this yet.

It’s not uncommon to have perfect experiences browsing the web, streaming videos or using online tools—while having a poor voice experience. That’s because voice is real-time and requires more back-and-forth flow of information than more standard Internet-based activities. One way or another, you need to secure a strong and stable connection before you commit to a hosted phone solution.

Security (HIPAA, IP-SEC)

Each business has different needs regarding security, though all of them should be making an effort to protect any sensitive data they handle. Hosted phone providers need to have certificates to prove that they’re IP-SEC, GDPR, and HIPAA compliant.

Basically, you should be able to trust your hosted phone provider to protect your data, and the data of your customers, securely.

👉 Dialpad tip:

To guarantee data safety, it’s important to pick a provider that encrypts all calls and communications, like Dialpad does. This encryption makes it far, far more difficult for hackers to decipher any data in the unlikely event of a data breach.

Contracts (existing and new)

If you’re still bound to a POTS or PRI contract that isn’t due to expire soon, you might not be able to swap over to hosted telephony right away. Of course, that may not apply if your new provider lets you keep your hardware and phone number, which is why it’s important to consider this.

You’ve also got to consider what you’re looking for in a new contract. Are you happy signing on for long periods of time, or do you want a monthly payment model? The clearer your ideas are of what a good new contract looks like, the easier it’ll be to find. The length of your contract and how you pay for it (monthly vs annually) can have a big impact on your total cost.

The Pay-as-You-Go model (extra fees and cost considerations)

Generally, hosted phone systems and UCaaS solutions operate on a fixed monthly cost model. It’s important to know whether that fixed price includes all the services you need.

If you’re going to incur extra fees for particular calls or to use upgrades that you need, it’s better to know this right away. You might get charged extra for storage, transcription, enabling call recording, integrations, and so on. Subscription costs can be incorporated into a budget, but surprise extra fees are much harder to plan around and effectively work with.

10 hosted phone system features you need (but don't get with every system)

Every hosted phone system is different, and each one comes with its own set of functionality. Regardless, though, a UCaaS solution almost always gives you the most—and most useful—features and benefits of any type of hosted phone system.

Here are 10 essential features that your unified communications platform or phone system should be able to deliver to your company to help you spend less and increase ROI:

1. Call and voicemail transcription

Even someone with perfect memory can’t be expected to recall every phone call they’ve ever had word-for-word. That’s what call and voicemail transcription is for. With this functionality, you can generate a real-time transcription of any conversation.

Transcriptions are useful for a lot of reasons, but for contact center agents, there are a couple of key ones:

  • Firstly, if a case is ongoing, the agent assigned to it can always refer back to transcriptions to double-check what’s already been said.

  • Sometimes businesses need to prove that someone did or did not say particular things, and transcriptions can provide direct proof.

  • They’re also useful when it comes to transferring cases between agents. With a transcript of all past conversations, new agents can get caught up in minutes.

  • Training and quality assurance are a breeze since it’s much easier to train staff when there are examples to use.

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Dialpad's transcription feature is built right into the communications platform

2. Video conferencing

While it can be very useful to talk over the phone, sometimes you just need to see the other person’s face, or the computer screen. That’s exactly what video conferencing lets you do, and why it’s so important to a great hosted communications system.

Video conferencing is particularly helpful when it comes to uniting teams with members scattered across locations. It’s also a great way to get more out of remote meetings. Speakers can bring their ideas across using visuals, gestures, and body language, while listeners can indicate that they’re paying attention through soundless actions like nodding or giving a thumbs-up.

3. Messaging: Chat and SMS/MMS

Chat and SMS are not the same, and finding a provider that can offer you both is critical. Chat is used internally, between your team members, in groups or 1:1. Most companies have a separate tool for this, but imagine having a single application for internal chats and external SMS/MMS discussions with customers and prospects.

SMS messaging services are a must-have for many businesses when it comes to their communications system.

This is because sending an SMS lets you instantly connect with anyone whose phone number you have access to, even when you aren’t speaking with them in real-time. That kind of functionality is indispensable for multinational businesses and companies with international clients in different time zones alike.

It’s no surprise, then, that SMS usage is growing continuously.

4. Uptime reliability

Before you consider which advanced features you want to look for, you’ve got to make sure that your prospective phone system is reliable and trustworthy. In a practical sense, that means it’s got 100% uptime (or as close as possible), and that support is available at all times.

Any potential VoIP provider should be able to prove to you that they can be counted on. Things like 24/7 technical support, accessible customer service portals, and excellent uptime statistics show you directly that your provider will be there for you in all ways that matter.

Be sure to inspect this though, as not all “99.999% uptime” guarantees are the same. Some have tertiary services that can go down without affecting your core voice services, while others might have more severe outages that can be damaging to your business.

5. Call recording

Just like transcripts, call recording is vital for posterity.

In particular, recorded calls can be valuable resources to anyone looking to train new call agents, or to evaluate the quality of the customer service the company provides. By letting you record calls, your hosted phone system essentially gives you the tools to grow and improve your business.

It’s especially useful to have access to call recording regardless of whether you’re using a cell phone, desk phone, or softphone. That way, you never have to worry about being able to have a record of your calls.

6. Built-in reporting and analytics

The keyword here is “built-in.” While most wireless business phone systems, hosted or not, should be able to provide you with data and analytics about things like call volumes, call durations, and so on…

The main issue is that most of these providers make it very difficult for you to get your hands on this data. Typically, you have to reach out to support, wait a few hours (or even days) for them to pull the data and send it to you.

At Dialpad, we don’t do that. You just log into your online dashboard and see all the numbers there:

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There are even useful heat maps that show your call volume patterns and your average speed to answer:

Heat map average speed to answer in dialpad contact center blog size

7. Auto attendant

Auto attendants (AAs), IVR, ACD—and it’s no secret that having a virtual receptionist is useful for your business.

Every provider should have an auto attendant feature that you can adjust on the front end, but adjusting the hours, menu options, different languages on system prompts, operators who answer calls and even the voicemails… That can be complex to configure. Choose a solution that is easy to use, set up and modify.

8. A fully integrated contact center

Whether you’re running a small business or an enterprise, you’ll want to provide excellent service to your customers. Contact centers are a great way to do this, since they’re dedicated to helping and connecting with your customers.

A full set of features is critical here. Nearly every provider will offer a queueing capability—but it’s the extra pieces that really make a service solution unique, and are things you should look for, even if you’re not using them yet. Things like…

  • Call recording

  • A single interface for agents and regular office phone system users (so no one has to learn multiple programs)

  • Day/night/holiday customizable call menus and flow

  • Programmable KPIs and triggers for alerts for dashboards and reporting

  • QA: Call scoring and coaching

  • Automated integrations (look especially for solutions that reduce the time your agents need to spend on post-call wrap up)

  • In-queue callback

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9. Integrations with the tools you already use

The best unified communications platforms offer you lots of options to integrate the software you’re already using. Common examples include Microsoft 365, Google Workspace, Salesforce, Okta, Zoho CRM, and Zendesk.

Integrations combine the functionality of the integrated app with your hosted phone system and other communication channels, giving you a unified interface that can do everything you need it to.

You can identify a truly useful hosted communications solution by the number of integrations it offers. If you can’t use your preferred apps within your UCaaS platform, it’s not truly a unified solution, after all. It should let you integrate the best apps with your communications solution.

10. Excellent call quality

Nobody likes trying to decipher what their calling partner is saying through a haze of static and grainy sound. Instead, it’s always important to opt for a provider that will let you make high quality calls across your devices.

Top-quality calls are more enjoyable to take part in, easier to record, and generally come across as more professional.

Your phone system should always offer you the best possible call quality for the bandwidth your Internet connection offers. Even with less bandwidth, you shouldn’t ever have to risk making poor-quality calls. First-class call quality should, in other words, be a priority to both you and your provider.

Think beyond hosted phone systems: Is UCaaS right for your business?

Whether you’re using a traditional PBX system for small business or a more modern voice over IP solution right now, it's highly likely that you'd benefit from making the switch to a UCaaS solution.

Instead of using a bunch of disparate tools, think of hosted VoIP as part of a UCaaS platform that gives your business all the tools it needs to optimize business communications in one place. This can give you better scalability, a fixed monthly fee-based payment plan—and often, zero upfront installation costs.

See why businesses like TownCenter Partners are using a hosted phone system that's part of a UCaaS solution!

Need a hosted phone system that's designed for remote + hybrid work?

Dialpad can give you that—along with way more than just phone calls. Sign up for a 14-day free trial to try it now! It takes just a few minutes, and you'll be set up with a virtual business number too.