A hosted PBX system differs from a conventional PBX system in the type of installation employed. In a hosted system, the PBX system is not installed in the company premises; instead it is controlled by a service provider. Hence it also referred as virtual phone system. The service provider provides the necessary service through VoIP networks. A single service provider provides service to numerous clients. A host of advanced features, which are usually associated with expensive equipments, are made available at a fraction of the cost to individual companies. This low cost is possible since the expenditure of the service and equipments are shared among the clients.

Calls to a Hosted PBX Phone System are answered by the hosted service provider’s equipment. Hosted systems usually greet the caller with a recorded message containing a menu of options. The call is then diverted to the appropriate recipient depending on the extension chosen by the caller.

A major difference between Hosted PBX systems and conventional PBX systems is the fact that in a hosted system an extension is associated with a particular person, and not a telephone. This enables a person to receive calls independent of his current location. This facility called follow-me calling utilizes a list of phone numbers associated with the person. The person can provide the phone number of his current location to the system, which then associates this number with his office extension number. Any business calls to this extension number is automatically routed to the phone number of the employee’s current location.

Companies which have offices and employees in different locations stand to gain a lot from the follow-me facility. The single recipient point provided by the hosted PBX system gives the illusion of a single office location. Companies can thus provide their clients and customers a better service using non variable telephone numbers.