What is hosted VoIP, how does it work, and what can it do for your business?

Successful businesses understand the importance of effective communication. Whether it’s efficient collaboration among teams or clear messaging to customers, keeping in touch is key, but how do you ensure robust lines of communication? Hosted VoIP may well be the answer.

A hosted VoIP service—and a Unified Communications solution—can help bring your business communications into the 21st century and secure them for whatever the future may hold. 

What are hosted VoIP phone systems, and how do they work? What can they offer businesses like yours?

Hosted VoIP phone system: Key takeaways

• Hosted VoIP systems are communications platforms hosted off-site by a third-party, which businesses access via software.
• Modern hosted VoIP solutions are often hosted in the cloud, but can still utilize servers owned by the third-party vendor.
• The benefits of hosted VoIP services over traditional on-premises setups include both upfront and ongoing cost-savings, and greater scalability, flexibility, and mobility. 
• When choosing between providers of hosted VoIP phone systems, businesses should consider the feature sets on offer, reliability, security, and more.

What is VoIP?

“VoIP” stands for “Voice over Internet Protocol.” It’s the technology behind internet telephony. 

It’s also used as shorthand for the types of communications solutions that use it to make phone calls and send messages using audio, video, and text over an internet connection.

The technology has been around for a long time (since the 1990s), but it’s only in recent years, with cloud computing, that hosted VoIP has become a viable option for businesses.

What is hosted VoIP?

So, what is hosted VoIP? It’s the name given to business VoIP systems hosted off-site by third-party vendors. That often means cloud-hosted VoIP solutions, but could utilize physical, off-site servers..

And, here’s the good news, particularly for smaller businesses; having a VoIP service hosted remotely means you don’t have to maintain all the infrastructure yourself.

Hosted VoIP providers take care of all that for you while you get on with the important work of running your own business. You can access all the telecommunications features you need via the cloud using a VoIP phone or any other internet-connected device.

That’s in stark contrast to an analog phone or traditional PBX system, where all hardware installation and maintenance falls on your shoulders.

With so many bits of jargon flying around, there can be some confusion about what hosted VoIP services are and how they differ from PBX or cloud VoIP. So, let’s get that cleared up.

Hosted VoIP phone system vs. cloud VoIP phone system

Hosted VoIP phone systems can work via the cloud. In that case, all the infrastructure supporting the solution exists virtually. Such solutions can accurately be called both hosted VoIP and cloud VoIP systems.

While most modern VoIP-based communications platforms are cloud-hosted, it is still possible for VoIP hosting to use physical servers instead. These are hosted VoIP services, but not cloud VoIP services. 

All cloud VoIP phone systems are also hosted VoIP systems, but not all hosted VoIP systems are cloud VoIP systems.

Hosted VoIP vs. hosted PBX

Another piece of jargon that can add to the confusion is “PBX”. What does it mean? It’s short for “Private Branch Exchange” and was originally the name for the technology used in on-premises phone systems. 

In those original on-premises PBX systems, call routing was handled on-site by equipment including switches, boxes, and copper wires. And it was all ultimately hooked up to the public switched telephone network (PSTN).

“Hosted PBX” is a name given to a system hosted off-site, which provides the same call management functionality. If you’re accessing a “hosted PBX” service, you’ll be doing so using an internet connection and not the traditional copper wire setup.

Major providers offering a hosted VoIP solution maintain the infrastructure themselves. It’s a key selling point. Some also offer on-premises solutions for companies that prefer not to use hosted VoIP phone systems.

One of the other advantages of hosted VoIP systems is their versatility. Because they’re cloud-based, you can use a hosted VoIP service not just to make voice calls but also all sorts of other things like sending messages or video conference calling.

A hosted PBX is a basic call management system for businesses hosted away from the business premises. A hosted VoIP system introduces a wider range of features made possible by internet telephony technology. 

How does a business hosted VoIP phone system work?

Let’s suppose you’ve implemented a hosted VoIP solution. What exactly happens when someone makes a voice call?

1. The call is placed

One of your staff members either picks up their phone or opens the hosted VoIP application on any internet-connected device.

Let’s say they’re using a laptop with a headset. They’ll dial or select the number they want and make the call. When the recipient answers, the conversation begins.

2. Analog to digital

The analog sound of your team member’s voice is converted into digital packets by the headset in tandem with the hosted VoIP application. 

The data packets are sent over the internet to the small business hosted VoIP phone system provider’s servers.

3. The role of the hosted VoIP company

The hosted VoIP service provider’s servers act like a switchboard, routing the call to the destination based on the number your team member is dialing. 

Note, that if the recipient of your call doesn’t have a VoIP number, that’s no problem; you can call traditional landlines as well, much like you can with a cell phone.

4. The call is answered

The hosted VoIP company’s servers route the data packets to the appropriate number, and the packets are converted back into analog sound for the recipient to hear. 

All this takes fractions of a second (whether it’s local or long-distance, international calling), so you’re unlikely to notice much difference between a voice call via hosted VoIP and a traditional phone call.

Essential hosted VoIP features

Hosted VoIP systems give you all of the essential calling functions you’d expect of any business communications solution. Think, things like:

• Call forwarding and transfer
• Voicemail 
• Easy routing of incoming calls to different phone lines or phone numbers (often via auto-attendant or virtual receptionist)
• Call recording.

However, there are a few further features of a hosted VoIP solution that outstrip traditional setups, which more businesses are taking notice of. 

These features all add up to a service that has exactly the kind of dynamic flexibility many companies are looking for and can be particularly beneficial for smaller companies that may not have the budget to stretch to an on-premises setup.

Choice of number types

You can choose to have various different types of numbers for your business. For instance, you can choose toll-free numbers to increase accessibility or local numbers for different areas to project a professional image and increase customer trust. 

It’s even possible to select vanity numbers if you’d like to do that for marketing purposes.

Multiple integrations

Because hosted VoIP solutions are fully digital, they dovetail readily with many other types of software. For instance, it’s common for hosted VoIP systems to have integrations ready to go with big-name CRMs like Salesforce and top-tier workforce management applications like Google Workspace.

Advanced analytics

Hosted VoIP systems often incorporate a suite of advanced analytics features to help streamline your workflows. This could include tools that deliver insight reports in real time or find patterns in historical data. 

The analytics packages are usually highly customizable, so you can find out exactly what you want to know when you want to know it.

Auto assistant

Some hosted VoIP systems provide automated assistant tools that take notes in real time and offer insights both during and after a call.

Recently, this technology has been enriched by the advent of AI-powered solutions, so it’s fair to say today’s auto assistants are much smarter than they used to be.

Unified Communications as a Service (UCaaS)

Many hosted VoIP solutions cater for more than just calls, too. Instead, they’re UCaaS platforms where businesses can manage and streamline all their communications channels. 

As well as the call management features already mentioned, these platforms also often offer:

• Business SMS
• Team or instant messaging
• Voicemail transcription and voicemail-to-email
• Call center or contact center features like Interactive Voice Response (IVR) and call queues
• Mobile apps to turn any mobile device into a softphone.

Business use cases for hosted VoIP systems

VoIP hosting providers offer a service that’s useful for all kinds of scenarios. Here are just a few of them:

1.Remote and hybrid working

With a hosted VoIP system, there’s no need for your staff to be chained to a desk phone (or even one individual IP phone). This opens up all sorts of possibilities for remote and hybrid working that may not have been possible before. 

Sales reps, customer service agents, and management leads can all achieve the bulk of their tasks no matter where they’re located—just by logging in on their mobile phone.

2. Easier audio and video conferencing

Hosted VoIP solutions tend to be very customizable in terms of their feature sets. And one thing many have in common is that they make arranging conferencing calls much more straightforward than via a traditional landline connection.

That’s thanks to the intuitive interface that makes it easy to select participants as a group rather than patch them in one at a time.

3. HD quality on a budget

Once upon a time, many people had doubts about VoIP because the early incarnations of it were said to suffer from lower call quality than traditional wired connections. But those days are firmly in the past. 

One of the reasons for the increased use of VoIP in business is that modern hosted VoIP delivers top-tier HD-quality audio at a fraction of the price of maintaining in-house telecoms architecture. All you have to ensure is that you have a fast enough internet connection with sufficient bandwidth.

Benefits of hosted VoIP systems

There are several ways hosted VoIP benefits companies that decide to embrace it. Here are some of the most important ones:

• Cost savings: Because you don’t need to bear the cost of maintaining expensive on-site telephony architecture, you save money. Most VoIP caller software is priced per user, per month, so the impact on your budget is also easy to predict and plan for. 
• Easy scalability and flexibility: Adding a new user is a simple matter; you simply set them up with an account and they’re ready to go. You can also delete accounts just as easily. This makes a hosted VoIP solution ideal for businesses that are in a growth phase or that have staffing needs that vary seasonally. You’ll never be stuck paying for services you’re not using.
• Simpler management: When there’s an issue with a traditional phone system, you need to schedule an appointment with a technician to come to your office and physically check the wiring. A VoIP host simply manages everything on their end, so all you need to do is make sure you have a good internet connection.
• Improved customer service: When you implement a hosted VoIP solution, you can customize it with advanced features that reduce call waiting times, making it easier to deliver the best possible customer support.
• Better data integration: Unleash the power of your data by taking advantage of all the integrations that come with hosted VoIP solutions. You can share call data with your CRM or productivity tools to generate actionable insights that can streamline your workflows and support better strategic decision-making.

Is hosted VoIP the right solution for you?

Deciding whether hosted VoIP is the right choice for your business comes down to a number of factors. 

Answer these questions to help you decide if hosted VoIP is the right choice for you:

How many employees do you have? For companies that have over 100 people working under one roof, an on-premises solution may be the most suitable, assuming you can afford to maintain the infrastructure. 

However, if you have fewer than 100 people or your team is spread over multiple locations, hosted VoIP usually works out better.

Do you use remote working or hot desking? Any company with teams that often work remotely or don’t have desks assigned permanently to individuals will benefit from using a hosted VoIP system.

What volume of calls do you deal with regularly? A hosted VoIP system works by using your broadband connection, so you’ll need to make sure you have a reliable connection that can handle the load—a robust 28Mbps should be the minimum. 

If you deal with a very high volume of calls from one location, that could tip the balance in favor of an on-premises solution.

What’s your budget? Hosted VoIP solutions tend to work out cheaper for smaller companies because they’re priced per user. Unless you have a very big budget, it’s likely you’ll save money by switching to hosted VoIP.

Hosted VoIP providers: Which one is best for you?

Choosing a hosted VoIP provider can be tricky as there are so many options available. It’s crucial to take the time to examine exactly what each one is offering to establish whether it would be a good fit for your business. 

Considerations when finding the best hosted VoIP providers

• Cost: Costs for hosted VoIP services can vary widely, so it’s vital to get a full breakdown before you take the plunge. Check whether you’ll be able to pay monthly or whether annual billing is the default. Also, make sure you establish exactly what is and isn’t included in each pricing tier so you can get all the functionality you need.
• Feature sets: If you’re just looking for a straightforward telephony service, you could probably go with a basic-tier option without any bells and whistles. But if you’re interested in using higher-end features, such as AI-powered analytics, then make sure you select a provider that offers these.
• Availability: Inevitably, there are times when a provider will need to take their service down to implement changes or upgrades—but this shouldn’t happen so often that it interrupts your work to the detriment of your service delivery. Look for providers that guarantee as little downtime as possible in their service level agreement.
• User support: Ideally, everything works well 100% of the time, right? Well, in reality, things do go wrong sometimes, and when they do, you need to have confidence that your hosted VoIP provider will be quick to resolve any issues you have. Before you commit, learn how the client support service works and look into independent reviews to find out what existing customers say about their experience.
• Security: It goes without saying that security is paramount when it comes to business communications. With sensitive customer information being transferred across the cloud, you have to be confident that your hosted VoIP operator prioritizes data security. Look for features like high-end encryption and user authentication.

RingCentral: Hosted VoIP and a whole lot more

Hosted VoIP phone systems are increasingly replacing traditional telephony setups for forward-thinking businesses. The benefits in terms of cost-savings, scalability, mobility, and more are hard to ignore. But what if you want even more?

RingEX from RingCentral offers full hosted VoIP phone system functionality and more besides. As a UCaaS solution, it can help you unite all your business communications channels on one platform. It’s an ideal way to harness the benefits of hosted VoIP and stay ahead of your competitors.   

So, why not reach out to one of our experts today to see how we can help take your business communications to the next level?

FAQs about hosted VoIP

What is VoIP hosting?

VoIP hosting is a telecommunications service in which users make and receive calls over the internet. A third-party provider manages and hosts the service on their servers, which are generally located in a data center or—more often—in the cloud. 

The benefit for users is that they don’t need to install expensive hardware in their office, something which can be especially useful for smaller businesses.

How does hosted VoIP work?

When a user wants to make a call, they fire up the VoIP application on their internet-connected device. They then dial or select the number they need and start the call. 

The sound of their voice is translated into data packets that are sent over the internet, via the VoIP host’s servers, to the recipient’s phone or device, where the data packets are translated back into analog sound.

What is the difference between VoIP and hosted VoIP?

VoIP is the name of the computer protocol used to transfer sound over the internet (Voice over Internet Protocol). It’s simply the name of the technology. Hosted VoIP, on the other hand, is the name for the service whereby a third-party provider facilitates VoIP calls via their data centers.

How does hosted VoIP pricing work?

Hosted VoIP phone services are generally provided on a subscription basis. Businesses pay a monthly fee for access to a software-based communications solution. 

Precisely how much these monthly fees are varies widely depending on how many features you’re looking to use. The simplest solutions, covering basic phone and messaging services, start at around $10 per user, per month. 

This can go all the way up to $30 per user, per month or even higher depending on how many top-end functions you want to include and how customizable you want your solution to be. Most businesses will end up paying somewhere in the middle.

Updated May 28, 2025