Upfront And Ongoing Costs Of An Ip Business Phone System

There are three crucial things for businesses to consider when exploring the cost of a phone system upgrade. These can be classified into:

  • Upfront Costs
  • Ongoing Costs
  • Total Cost of Ownership– businesses view any technology solution from the point of the total cost of ownership, or TCO. This is the sum of the expenses of acquiring and operating a device through its lifespan, i.e. Upfront costs+ Ongoing Costs= TCO. Though individual cost aspects can appear comparatively low, the overall sum of a package can be higher than first thought once a TCO calculation is done.

Calculating the Total Cost of Ownership for an IP Phone System includes:

  • The Monthly line rental fees for each user
  • The cost of calls per month
  • The cost of handsets and other hardware like headsets, etc.

There are three kinds of IP phones categories, and they are: 

  • IP PBX
  • Virtual or Cloud or Hosted
  • And Hybrid VoIP phone Solutions.

Three central factors regulate the total cost of ownership (TCO), supposing that all items and functions are the same

  • The cost of maintaining the solution
  • The life cycle of the solution
  • The total number of users

The upfront costs of businesses will vary depending on the service or product they are buying.

Hardware and Equipment: this refers to relatively cheap handsets, laptops/ computers to enable video calls, software like softphones may eliminate the need for physical phones.


IP business Phones remove the need for installing cables and copper wires as connections are through the Internet. However, businesses should test their internet capacity so that they enjoy excellent bandwidth capabilities on their calls.


Businesses save money on their calls as such calls are routed through the Internet instead of proximity to a cell tower, eliminating the excessive charges on long-distance calls.

Changing from a traditional landline to a VoIP system means that businesses can reduce their phone bill to a fraction of their previous payments. Updates on the latest software are often included in the business package costs, ensuring that maintenance costs remain low as well.

Hosted/ Cloud-based VoIP

Cloud-based or Hosted VoIP provides telephones at your office, with the brain behind the calls held in a cloud data centre. Your phone uses your computer network and broadband to link with the data centre from where the hosting company routes your calls to their destinations. It must be noted that hosted VoIP attracts a monthly charge on every operational phone.

On-Premise IP-PBX

On-site or on-premise IP PBX is where you have your own VoIP server on-site, i.e. at the office. This server can connect local phone-sets and analogue, ISDN and SIP Trunk (virtual lines) channels. Though hosted on an Internet-based Media Server, the SIP trunks simply route calls to and from your IP PBX, which readily distributes all of the inbound and outbound call routings. It is your responsibility to get vendors whose call tariffs are cheap. In this model, you make a one-time purchase of the on-site Equipment and pay a low monthly charge for SIP Trunk channels.

Some reputable VoIP solution providers prefer to offer ‘on-site systems’, instead of ‘Cloud-based systems’ because on-site solution offers many options and are not so expensive throughout their operative period.

Here are a few reasons why Hosted VoIP may not be the ‘cheap’ alternative it is presented as:

  • Hosted VoIP is presented as cheap to set-up due to its initial cost and the hardware’s monthly rental (Cloud Server). Short term, it may seem good, but the big difference between the systems is that in subsequent years, the ongoing expenses of the IP PBX will be less expensive because of the little fee charged for SIP Trunk channels, and very reasonable call rates. This means that taking the hosted solution option is like buying a new phone system single every year for its lifespan.
  • Some Hosted VoIP system vendors may not consider your current computer network. They will arrange for phones to connect into obtainable network sockets and use your modem to connect to the Internet. But this will lead to poor call qualities and other technical challenges which may result in a loss of customers for your business. Some hosted VoIP vendors may set up a second network supporting your phones, and their Internet access to counter this. While this separates voice from data networks, it also makes it more expensive.
  • Hosted VoIP solutions may lack the capacity to provide Hybrid line systems. When broadband is not available as a high-speed fibre service, it is more dependable to have an on-site system using SIP Box services that complement traditional copper wires or ISDN lines even cell phones. In a remote part of Australia where broadband is not so reliable, an IP PBX may be equipped with ‘Gateways’ for unconventional traditional POTS/ISDN line services.
  • Hosted VoIP platforms provide an onward connection to local, national, mobile and International services through carrier partners under service and tariff agreements with your hosting company. Therefore, your hosting company’s call tariffs are set, and you – the end-user – cannot choose a different carrier to give you better rates to frequently called destinations. On-site IP PBX server can be programmed to use the fastest connection means available, i.e. ‘Lowest-Cost-Route’ calls over the SIP Box crowd channel and DDI numbers based on the dialled destination, leading to a substantial reduction in monthly call charges to mobile numbers.
  • Hosted VoIP service providers usually have longer-term contracts to ensure that they recoup the investment in their central Equipment and to cover the phones and network equipment they provided you at the start of the contract transaction. Hosted VoIP solution could cost you about four to five times more than an on-premises IP-PBX at the end of that five-year contract! It is a good revenue spinner for Telecom companies, but not so cost-effective for you, the customer.

Some popular misconception about IP PBX corrected …

  • On-site IP PBX systems may support working outside the business premises and remote office extensions just as capable as Cloud-based VoIP. Having an IP PBX Box does not thwart or make remote working to be harder. This is because new IP PBX systems operate platforms needing slight hardware care with full remote support facilities included – so that if needed, the service vendor can affect alterations for their clients from anywhere there is internet connectivity.
  • Like hosted systems, it is fairly straightforward to implement an automated backup of on-site IP PBX equipment and provide alternate hardware if there is an IP-PBX system failure due to repairing or replacing the system.
  • IP-PBX systems usually are much better combined with your Local Area Networks for computers. As such, utilization of software to integrate PC desktop directory and CRM apps is much more comfortable.


VoIP systems are the most economical solution for businesses. VoIP phone systems offer cost savings that can’t be found on a traditional landline from the initial setup fee to hardware, software, and service costs. What’s more, businesses who make several international calls could receive thousands on savings from service fees.

Overall, the Upfront Cost of an IP PBX system may be higher than that of a Hosted system. The ongoing costs for both systems are on a par for the first year; after which the ongoing costs of IP PBX becomes cheaper than that of Hosted system.

TCO wise, it is better to have the IP PBX once the initial outlay is available as it far outstrips the Hosted system in cost savings.


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