Telephone Service Providers and PBX System Components

Telephone Service Providers and PBX System Components

Telephone Service Providers and PBX System Components

A Historical Timeline 1876      – The first telephone service provider exchange is established in New Haven, Connecticut, by Alexander Graham Bell.

Since the 1960s, most business telephone service providers have operated on the principles first developed for private automatic branch exchange (PBX) systems. PBX telephone systems were a revolutionary leap in communications technology that allowed businesses to have many interconnected lines without having to have separate lines that belonged to their telephone service provider for each extension.

PBX systems are made up of three parts:

  1. The telephone service provider
  2. The PBX system
  3. The customer’s premise equipment

The telephone service provider (TSP) is the company that provides long-distance and local telephone circuits to the customer. The telephone service provider also provides the dial tone to the customer’s PBX system.

The PBX system is a switching system that interconnects the customer’s local and long-distance telephone lines. The PBX system also provides call forwarding, conference calling, and caller ID.

The customer’s premise equipment (CPE) is the equipment located on the customer’s premises. The CPE includes the customer’s telephone set, fax machine, and computer modem.

The TSP, PBX system and CPE are all interconnected to create a complete business telephone system.

 A business telephone service provider has many advantages over a traditional telephone system.

  • A business telephone service provider is more scalable than a traditional telephone system.
  • A business telephone service provider can be easily customized to meet the specific needs of a business.
  • A business telephone service provider is more reliable than a traditional telephone system.
  • A business telephone service provider can be less expensive than a traditional telephone system.
  • A business telephone service provider is the best choice for a business that wants to have a modern, reliable, and scalable telephone system.
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How a PBX Works

The primary function of a PBX system is to allow in-house calling between extensions and to route for outside calls easily and quickly. This was an elegant and practical solution for companies with many employees to everyday productivity and expense issues associated with their operations and communications.

The PBX system was connected to a “trunk line to route outside calls.” This telephone service provider line has been leased from the local telephone service provider to provide access to the Public Switched Telephone Network (PSTN).

The PSTN is the world’s largest network of interconnected telephone lines, switches, and other equipment that enables the placing and receiving of telephone calls from anywhere in the world without the need of telephone service providers.

The connection between the telephone service provider and the PSTN is typically made via an integrated services digital network (ISDN) line or a T1/E1 line. 

ISDN lines are a type of digital circuit that was designed for the transmission of voice and data.

T1/E1 lines are a type of high-speed digital circuit used to transmit voice, data, and video.

The connection between the PBX system and the PSTN allows the PBX system to make and receive telephone calls to and from the PSTN.

To make an internal call, a user dials the extension number of the person they wish to reach without going through a telephone service provider.

When an employee in one department (or office) places a call to another employee on the same network, the call is routed through the internal exchange and doesn’t require an outside telephone service provider line. When this same employee needs to place a call outside the company network (an external call), a line is readily attainable through the same exchange.

This system can save businesses in overall communications costs by allowing these lines to operate independently of their telephone service provider for the large volume of in-network calls that most companies have.


The PBX system itself is not overly complex in its design. It was designed to mimic the same process the telephone service providers used to switch and connect calls but to do so within a company’s on-premise or in-network area.

For a company researching deploying its PBX system, several system components are necessary to purchase.

  • Exchange – The exchange is a significant switching station that connects and routes calls, internally or externally. This unit can be as small as a cabinet or as large as a large closet or room, depending on the size of the network and the number of lines involved. This is the “brain” of the PBX system and is where the bulk of the equipment, software, and expense are concentrated to ditch telephone service providers.
  • Gateway – The gateway is the component of a PBX system that connects the internal network to the outside world. This route calls from the exchange unit to the local Public Switched Telephone Network (PTSN) lines. When someone inside the PBX system dials an outside line, the gateway is responsible for connecting the internal extension to the outside line to complete the call.
  • Handsets – The actual telephone service provider’s handsets used with PBX systems are generally specialized units designed with the increased functions of most PBX systems. These handsets enable users to dial inside extensions, connect to outside telephone service provider lines, utilize paging and intercom features, and access other feature sets available within a given system.
  • Headsets – headsets are an optional component of a PBX system but can be extremely useful for employees who spend a large portion of their day on the phone. 

Total Cost for PBX

The total cost of ownership (TCO) of a PBX system varies depending on the scope and features included in the system and on the telephone service provider or manufacturer who is supplying the parts and maintenance. There are often service charges involved when adding or altering extensions, upgrading systems, or otherwise changing the operational parameters of a PBX system. These charges can vary greatly depending on the telephone service provider and manufacturer.

One-time costs for a PBX system can be as low as a couple of thousand dollars for a small business with only a few lines and extensions to hundreds of thousands of dollars or more for an extensive enterprise system. 

Ongoing costs for a PBX system are typically lower than the cost of an equivalent amount of business telephone service provider from a traditional telephone company. These charges generally cover the cost of parts, maintenance, and repairs. Currently, virtual PBX systems are offering PBX systems without all the equipment and maintenance needs. 

If you are looking to ditch your traditional telephone service provider, check out our phone systems software page for better solutions than your standard telephone service provider. 


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