On-Premises vs. Cloud Phone Systems: Which One Is Right for Your Business?

Choosing between an on-premise phone system and a cloud-based solution is a key decision for businesses looking to upgrade their communication infrastructure. Both options offer distinct benefits, but the right choice depends on factors like flexibility, cost, and long-term management.

Cloud-based phone systems have grown in popularity, with many companies turning to internet-based communication for its scalability and ease of use. According to recent data, up to 96 percent of companies currently make use of cloud solutions for communications. However, on-premise systems remain a viable option for organizations that prioritize control and on-site management.

This guide will break down the key differences between cloud and on-premise phone systems, covering costs, security, and operational impact to help you determine which solution best fits your business needs.

Quick Takeaways

• Cloud-based phone systems offer scalability and lower maintenance costs, making them ideal for businesses that need flexibility and remote work capabilities.
• On-premise phone systems provide more control and stable voice quality, but they require higher upfront investments and ongoing maintenance.
• Total cost of ownership varies between the two options, with cloud systems having predictable subscription fees while on-premise systems may incur hidden costs over time.
• Security differs based on system management, with on-premise setups requiring in-house oversight and cloud providers offering built-in security and compliance measures.

What Makes Cloud Telephony Different from On-Premises Telephony? 

Traditional telephony involves the on-premises installation of phone systems through the linking of all company phone extensions and their subsequent connections onto public phone networks. Advanced on-premises phone systems also incorporate VoIP services. Cloud-based systems, on the other hand, facilitate the linkage of a brand’s network of phone extensions using the internet. Where on-premises telephony uses desk phones, cloud phone systems utilize softphones.

Advantages of Cloud Phone Systems vs. On-Premises Phone Systems

Here are a few benefits you can expect when investing in a cloud phone system:

Scalability 

The most noticeable upside that cloud telephony has over traditional telephony is the degree of scalability that it gives businesses. It allows for service adjustments in accordance with seasonal and industry fluctuations. 

What’s more, cloud phone systems allow for automatic installation of updates, as opposed to traditional phone systems, which need manual upgrades that could be time-consuming and cause downtime. 

No Installation Costs 

You don’t have to invest heavily in the initial installation or PBX maintenance — as is the case with on-premises systems. Cloud phone systems don’t require significant capital outlay, making them suitable for a wide range of businesses, especially start-ups and small businesses. 

Flexibility 

With cloud phone systems, your team doesn’t have to work from the office. They can work anywhere with access to good internet. Remote working offers your team more flexibility to plan out their day, making them more productive. 

Quick and Easy Call Management 

Cloud phone systems come with extra features that allow your team to organize and manage business calls. Besides streamlining your processes, this allows you to easily collect data from your customer base.  

Advantages of On-Premises Phone Systems vs. Cloud Phone Systems

Some businesses still prefer on-premises solutions versus their cloud-based counterparts.

Here are some of the advantages of on-premises phone systems:

Control of Communication by Management 

On-premises telephony allows for on-site controllability by communication managers and business owners, but will most likely require someone who is trained to do so. A cloud-based phone system can be easily configured and maintained by anyone and changes can be made on the spot. Also, be on the lookout for vendors who offer top-notch support.

Stable Voice Quality 

While today’s cloud phone systems have top-notch voice quality, they can still be affected by a range of external factors that degrade communication quality. These factors include bandwidth, network configuration, and the type of devices used. Make sure you have the right network requirements before making the switch and look for vendors with financially-backed SLAs.

Cheaper to Setup (but look for hidden costs)

On-premises telephony usually involves a one-time payment during installation, but can cost you more in the long run with maintenance and downtime. Conversely, cloud telephony usually requires clients to pay a monthly hosting rate as well as upfront costs for the endpoints, but overall, it can be cheaper in the long run.

Evaluating the Total Cost of Ownership: Cloud vs. On-Premise Systems

When weighing the decision between an on-premise phone system and a cloud-based solution, cost is often one of the biggest factors. 

While on-premises systems may seem like a one-time investment, they come with ongoing expenses that can add up over time. Cloud-based systems, on the other hand, operate on a subscription model, which may appear costlier upfront but often leads to long-term savings.

Upfront and Recurring Costs

On-Premise

An on-premise phone system typically requires a significant initial investment. Businesses must purchase hardware, including PBX servers, desk phones, and wiring infrastructure. Installation can also be complex, requiring IT resources or external consultants. Beyond the upfront cost, there are recurring expenses such as system maintenance, repairs, and upgrades. Any modifications, such as adding new users or integrating new features, often require additional spending.

Cloud-Based

With a cloud-based system, the primary cost is a recurring subscription fee. This usually includes software updates, maintenance, and customer support, reducing the need for in-house IT management. Since cloud systems operate over the internet, there’s no need for extensive hardware investments, making them a more cost-effective option for businesses looking to scale efficiently.

Hidden Costs and Long-Term Considerations

On-Premise

On-premises systems may appear more affordable in the long run due to their lack of monthly fees, but hidden costs can erode those savings. Businesses must account for hardware depreciation, unexpected repairs, and potential downtime due to system failures. Additionally, as technology advances, older systems may require costly upgrades to remain functional and compliant with evolving communication standards.

Cloud-Based

Cloud systems, while subscription-based, eliminate many of these hidden costs. Updates and security patches are handled automatically by the provider, ensuring the system remains current without additional investment. Additionally, cloud solutions scale more easily—businesses can add or remove users as needed without purchasing extra hardware or expanding IT infrastructure.

Security Considerations in Cloud and On-Premise Phone Systems

Security is a top concern when choosing between an on-premise phone system and a cloud-based solution. Both options come with their own security advantages and risks, and businesses must consider factors like data protection, compliance requirements, and system management when making a decision.

Data Security and Compliance

On-Premise

On-premise phone systems give businesses complete control over their security measures. Since data and communication infrastructure are housed on-site, organizations can implement their own firewalls, encryption protocols, and access controls. However, this also means that security is entirely the company’s responsibility. Without dedicated IT resources, ensuring compliance with industry regulations and keeping up with evolving cybersecurity threats can be a challenge.

Cloud-Based

Cloud-based phone systems, on the other hand, rely on the provider to handle security. Reputable cloud vendors invest in advanced encryption, regular security audits, and compliance with industry standards such as GDPR, HIPAA, or SOC 2. Many also offer built-in disaster recovery options, reducing the risk of data loss in the event of an outage. While businesses must trust their provider’s security practices, they also benefit from automatic updates and real-time threat monitoring.

Risk Management and System Vulnerabilities

On-Premise

An on-premise phone system is only as secure as the measures put in place to protect it. Without proactive maintenance and security updates, these systems can become vulnerable to cyber threats, internal misuse, or physical damage. Businesses must regularly monitor and patch their systems to prevent security gaps.

Cloud-Based

Cloud phone systems rely on internet connectivity, which means security depends on both the provider’s safeguards and the business’s internal network setup. Poor network configuration or weak access controls can expose cloud-based communications to risks like phishing attacks or unauthorized access. Businesses should implement multi-factor authentication (MFA), secure network policies, and work with providers that offer financially backed service-level agreements (SLAs) to ensure system reliability.

Scale Up Your Business Today with Intermedia

Choosing between an on-premise phone system and a cloud-based solution comes down to factors like cost, security, and long-term management. While on-premise systems offer control and stability, cloud-based solutions provide scalability, flexibility, and reduced maintenance. Evaluating your business’s needs will help determine which system best supports your communication strategy.

Explore Intermedia’s cloud phone system can enhance your business’s communication efficiency and scalability. Contact us today to learn more or schedule a demo to find the right solution for your needs.

Melinda Curtis

Melinda Curtis is a Director of Product Marketing at Intermedia, where she focuses on helping businesses improve employee productivity and enhance their customer experiences using Intermedia's award-winning cloud communications solutions. Melinda brings over 20 years of experience in telecommunications, having worked in B2C and B2B marketing, product management, and vendor management roles. In her free time, she loves to travel with her family.