What is Hosted VoIP? A Full Guide for 2024

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Hosted VoIP can be a cost-effective way to make and receive phone calls and improve your company’s communications. At Techopedia, we know that navigating your options can be intimidating, especially when it comes to something as vital as your company’s phones.

You may be weighing the pros and cons, concerned about installation complexity, the reliability of VoIP services, and cost implications. In this article, we provide a full guide to hosted VoIP — what it is, how it works, and everything in between.

Key Takeaways

  • Hosted VoIP converts voice into digital data that’s transmitted over the internet, eliminating the need for traditional phone lines.
  • Hosted solutions differ from on-premise and other hosted communication solutions, offering unique benefits.
  • Cloud VoIP phone systems provide cost savings, scalability, and advanced features compared to traditional phone systems.
  • Concerns about call quality and reliability can be mitigated with proper network setup and a reputable service provider.

What is Hosted VoIP?

Voice over Internet Protocol (VoIP) lets you make telephone calls over the Internet instead of via traditional phone lines. With hosted VoIP, a third-party provider handles the technology off-site for you.

This means your business doesn’t need to invest in or maintain any of the complex infrastructure typically associated with an on-site telephone network.

If you’re looking for a communication system that can adapt to rapid changes and facilitate modern working methods, hosted services provide a compelling solution.

How Does Hosted VoIP Work?

When you speak into a VoIP-enabled device, your voice is compressed into data packets, sent over the web, and decompressed back into audio at the other end, so the person you’re calling can hear you. This is nearly instantaneous to ensure clear conversations.

The backbone of a hosted system is a cloud-based private branch exchange (PBX). This is a private company telephone network. “Hosted” means it’s managed remotely by a VoIP service in the cloud rather than physically located in your office.

Here’s what typically makes up a hosted VoIP system:

IP PhonesRoutersVoIP Service Provider

You use these devices to make and receive calls. They can be physical handsets or software-based phones installed on computers or smartphones.

Your internet router plays a crucial role by ensuring that voice data gets priority over other types of internet traffic, maintaining call quality.

Virtual phone number services manage the hosted PBX, ensuring call routing, management, and features like voicemail, are all functioning.

Advantages of Hosted VoIP

Hosted services offer many advantages over traditional telephony, especially for businesses looking for modern communication solutions. Here are some key benefits:

  • Flexibility — You can add or remove users and features as your business evolves without alterations to infrastructure.
  • Mobility — You can make and receive calls from anywhere using your business number on any device.
  • Cost-effectiveness — There’s less hardware to maintain and cheaper call rates, particularly for international calls.
  • Streamlined communication — Integrate with other tools, such as customer relationship management (CRM) systems, for seamless operations.

Limitations of Hosted VoIP

While cloud VoIP solutions have numerous benefits, it has a few potential issues, including:

  • Dependent on the Internet — Call quality could suffer if your Internet service is poor. However, this is less prevalent with the advancement of broadband technology and Quality of Service (QoS) settings on modern routers.
  • Vulnerability to outages — If your internet goes down, so could your phone system. Many providers offer redundancy and failover protocols, ensuring calls can be rerouted to cell phones or other landlines in the event of an outage.
  • Service disruptions — Periodic maintenance or system upgrades introduce the risk of service interruptions. However, because the system is hosted, maintenance can usually be performed with little to no disruption to you.

So, while there are a few limitations to consider, hosted systems are designed with features that address these concerns, ensuring a reliable and high-quality service.

Are Hosted VoIP Services Cost-Effective?

Hosted VoIP services can be more cost-effective than traditional phone systems, primarily due to lower initial investments and reduced maintenance costs.

There’s no need for expensive on-site PBX hardware, as the service hosts all the necessary infrastructure. This also means maintenance and upgrades are their responsibility, leading to additional savings.

Furthermore, with hosted services, you typically pay a predictable monthly fee, which often includes unlimited calling, thereby avoiding the per-minute charges of traditional phone lines.

Consider both direct and indirect costs when evaluating the cost-effectiveness and potential savings:

  • Direct costs include the monthly service fee and initial setup or hardware expenses.
  • Indirect savings come from enhanced productivity and efficiency due to integrated communication features.
Hosted VoIP Traditional phone system
Initial investment Low High
Maintenance Low High
Call charges Often included in the monthly fee Per-minute charges
Features and upgrades Included Additional costs

To determine if hosted solutions are right for your organization, assess your current communication costs, consider the potential savings, and factor in the value of the additional features that these services provide.

Alternatives to Hosted VoIP

Other communication alternatives include traditional landlines, on-premise VoIP, and mobile-based VoIP solutions. To help you decide, here’s how they compare:

Hosted VoIP vs On-Premise Solutions

On-premise solutions require the phone system equipment and software to be located on your property. These offer more control over the communication setup but require significant up-front investment and ongoing maintenance.

Here’s how hosted VoIP compares:

  • Cost — Hosted solutions typically have lower upfront costs and are maintained by the service provider, whereas on-premise solutions require significant capital expenditure for equipment.
  • Scalability — Adding lines or features with hosted VoIP is as simple as adjusting your service plan, while on-premise systems may need new hardware or software licenses.
  • Control — On-premise solutions offer more direct control over the system, which you may prefer, but this comes with added complexity in management.
  • Features — Both can offer a range of features, but hosted VoIP is generally more flexible in adopting new technologies.
Hosted VoIP On-premise VoIP Traditional landline
Initial cost Low High Moderate
Scalability High Moderate Low
Maintenance Provider-managed Self-managed Provider-managed
Control Less More Less

Hosted VoIP vs Other Hosted Solutions

When looking for a dedicated voice communication service, there are a few different types of hosted solutions that are very similar to hosted VoIP:

Hosted PBX

Hosted PBX includes all the capabilities of hosted VoIP but usually adds more traditional phone system features, such as call holding, transfer, and conference calling.

If you’re looking for an advanced phone system with the flexibility of a hosted service, Hosted PBX could be the right fit.


If you need an all-in-one communication solution, UCaaS (Unified Communications as a Service) integrates voice, video, messaging, and collaboration tools into a single cloud-based platform.

It’s designed to streamline your team’s workflow and boost productivity through comprehensive communication tools.

Cloud-Based Contact Center

Tailored to customer service, this solution integrates hosted VoIP with features like call routing, interactive voice response (IVR), and CRM integrations. If your focus is on providing sophisticated customer service, these solutions will support your needs.

Here’s a quick summary of these options:

Hosted VoIP Hosted PBX UCaaS Cloud contact center
Primary function Voice communication over the Internet Enhanced voice communication with broader phone system features Integrated for all communication and collaboration needs Tailored for customer service
Complexity Low Low to moderate High Moderate to high
Cost-effectiveness High Moderate Depends on your needs Depends on your needs
Reliability High High High High

If you’re leaning towards an uncomplicated yet effective solution for voice communications, hosted VoIP is a highly reliable and cost-effective choice. Should your business demand a broader array of features or integration, the other options could be worth considering.

Best Practices for Adopting Hosted VoIP Services

Adopting hosted VoIP services can streamline your communication processes, but it’s vital to approach the transition methodically. Follow these steps to ensure a smooth implementation:

  1. Assess Your Network

    Before anything else, you should evaluate your current network. Voice quality with hosted systems relies heavily on your internet stability and bandwidth. You may need to upgrade your infrastructure to ensure it can efficiently handle the additional VoIP traffic.
  2. Prioritize Security

    Ensure your hosted VoIP provider offers robust security measures to safeguard your communications and data. It’s your responsibility to protect sensitive information, so ask potential vendors about encryption, network security protocols, and compliance.
  3. Choose the Right Vendor

    Selecting a reputable VoIP provider is paramount. You should look for vendors with a strong track record of reliability, excellent customer support, and clear Service Level Agreements (SLAs) that guarantee uptime and performance.
  4. Train Your Team

    Before fully integrating hosted VoIP into your business, make sure your team is prepared. Provide training to help them understand how to use the new system effectively. Familiarity with the system will help mitigate resistance and avoid potential downtime.
  5. Create a Migration Plan

    You need a clear and detailed plan to transition to the new hosted VoIP system. This plan should minimize disruption to your daily operations and include a timeline, key milestones, and the responsibilities of everyone involved.
  6. Start With a Pilot Program

    Implementing a pilot program allows you to work through any issues on a smaller scale before the company-wide rollout. Use this as an opportunity to gather feedback and make necessary adjustments.

By diligently following these steps, you can set your business up for success with hosted VoIP services.


Hosted VoIP is a cloud-based communication system that enables voice calls over the Internet. It offers advanced features and flexibility without the need for on-premise infrastructure—helping to streamline operations, enhance productivity, and reduce costs.

If you’re considering making the switch to hosted VoIP, the next practical step is to research and compare the best VoIP service providers.


What is the difference between cloud VoIP and hosted VoIP?

What is the difference between hosted and non-hosted VoIP?

Is VoIP usually hosted or onsite?

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Richard Sutherland
Technology Expert
Richard Sutherland
Technology Expert

Richard brings more than two decades of computer science, business operations, and full-stack development experience to Techopedia. A Computer Science graduate and former Samsung IT support manager, Richard has taught courses in Java, PHP and Perl, and created code for the public and private sectors. A prolific B2B and B2C tech writer, Richard has worked for Samsung, TechRadar Pro, and more.