Small business phone systems generally use one of two technologies: voice-over IP (VoIP) or landlines. VoIP technology uses your internet connection to transmit your voice as data while landlines use traditional copper wires. VoIP is newer technology that delivers a wider range of features for a lower cost than traditional landlines.
In this article, we will explore the two technologies in greater detail, compare their advantages and disadvantages, and help you decide on a solution for your business.
Our Recommended Small Business Phone System: Nextiva VoIP
Small business VoIP phone service from Nextiva starts at $32.95/month per user for 1-4 users and decreases as more users are added. For five users, VoIP phone service costs about ⅓ of what a five-line landline service from Verizon will cost. This used to mean a trade off in call quality, but advances in the technology mean that VoIP phone service is on par with a landline.
VoIP also delivers call management features like call transfer, call queuing, group ringing, phone directories, and many others. Therefore, we recommend VoIP technology for your small business phone system as a cost efficient and future proof solution.
VoIP vs Landline Comparison
|Cost of Service|
|Major Advantages of Service|
|Major Disadvantages of Service|
VoIP vs Landline: Cost of Service
Regardless of the technology behind the service, for most small business owners the primary factor when deciding between VoIP and a traditional landline will be the cost. There can be initial setup costs, which some service providers will waive, as well as ongoing monthly costs for both types of services. Here is a summary of how you can expect them to break down, using costs from Nextiva and Verizon as examples for VoIP and landlines, respectively.
All with three-year agreement
|$563.27/month for five lines, including taxes (based on NY) and fees¹|
|Domestic Call Rates|
|International Call Rates|
depending on destination.
¹Quote was obtained from a chat with an online Verizon customer service representative on November 27, 2017 and based on a service address in New York, NY.
With a traditional landline phone system, you can choose between individual phone lines or an in-house PBX system. A PBX system allows you to add additional functionality like call transfer, intercom, call queuing, group ringing, phone directory, etc. to your phone system.
But if you want these additional features, then the cost of the PBX system hardware can quickly run into the thousands of dollars — especially when you factor in the cost of having a technician install and maintain it.
However, these features come included with most VoIP services for no additional cost and without the need for additional hardware.
Aaron Udler, President and CEO of the business communications software training firm, OfficePro, calls cloud-based VoIP service providers the “wave of the future.” Udler says that his firm is “seeing Fortune 100 companies make this transition, saving them millions of dollars each year on old PBX phone systems, VoIP hardware, and landline hardware.”
What is VoIP Phone Service?
Instead of your local phone company’s copper wires, VoIP phone services use your business’ existing internet connection to convert and transmit voice as data. If you’ve used Skype to make a phone call, then you’ve used VoIP technology before. But while Skype and other services like Vonage are typically used by individuals, there are other services, like Nextiva and RingCentral, that leverage the same technology on a larger scale for businesses.
VoIP systems also give you the option to buy your equipment outright and have your IT team self-host and manage the service, or to forego buying it in favour of renting the equipment from your service provider and having them host it in the cloud. But because most small businesses don’t have the resources to dedicate to an in-house IT team, we will focus on cloud-based solutions for their ease of use and cost efficiency.
What is Landline Phone Service?
Traditional landline phone services, also known as public switched telephone networks (PSTNs), will be immediately familiar to any small business owner. They are the analog systems that run via your local or regional telephone company’s traditional copper wiring.
To run a landline service, your business will need on-site private branch exchange (PBX) hardware. This is the hardware that allows you to create multiple phone extensions and enables system features, such as call transferring and extension directories.
Advantages of VoIP Phone Service
VoIP systems provide a feature-rich and technically advanced phone solution. They are easily setup, configured, and managed, and are usually a more economical option than traditional landline systems.
Small businesses that want the advanced functionality of a sophisticated phone system at a reasonable price, as well as businesses that want their remote employees to have access to the same phone system to present a single face to their clients, will be best served by a VoIP telephone service.
Cloud-based VoIP services have the added benefit of no maintenance or hardware (other than your phones, of course) to worry about. The service provider houses, maintains, and upgrades all of the technology for you, which means that your up-front costs are minimized and you’ll automatically have access to new features as they become available.
But perhaps the most significant technical advantage of VoIP services is their scalability. Landline systems are limited to the number of lines that you have connected and adding more means installing them and upgrading your hardware. However, because VoIP systems only rely on your internet connection, they allow for an unlimited number of lines. This drastically reduces your setup and maintenance costs.
Your ongoing costs will likely be less with a VoIP service as well. Because your voice is transmitted as data over the internet, the cost to operate the service is smaller than over the copper lines of traditional landlines and these savings are passed on to you. While it’s normal for both landlines and VoIP to include unlimited domestic calling in their plans, international call rates are significantly cheaper with VoIP. In our comparison of Verizon and RingCentral above, for example, international calls on Verizon’s landlines started at almost 30% higher per minute.
The technology behind VoIP services also means that they can offer features that traditional landlines can’t.
- Mobility. VoIP services allow you to use your mobile phone as an extension of your office phone, which extends your phone system to literally anywhere you’re located. You can have calls forwarded to you to receive them anywhere you are, as well as make calls and have them appear to come from your office phone number. This is a huge benefit for people who visit clients, such as sales or account managers, as well as remote employees.
- Portability. VoIP technology allows you to use any phone or even computer as your personal extension, which means that you’re not limited to making or receiving calls at your desk.
- Flexibility. Cloud-based VoIP services enable you to login to your account from your computer or smartphone app and manage your phone system on the fly, including how calls are routed and handled. For example, you can use the advanced routing features to setup a recurring schedule in which calls are forwarded to your mobile phone on evenings and weekends.
- Accessibility. Most VoIP service providers offer advanced accessibility features, such as having voicemails converted to text and sent to you by text message or email, which can be a particular benefit to the hearing impaired.
- Integrations. The same voice-to-text feature also means that your VoIP system can be integrated with third-party applications, such as CRM software. So, for example, when you receive an incoming call your CRM could automatically scan for the number and display any relevant data you have associated with it.
Russ Fordyce, Managing Director at Broadview Communications, spoke to this last point when he said that “VoIP solutions are continuously evolving and being enhanced. Now, for instance, the industry is moving towards a more unified communications approach or UCaaS, which combines a VoIP system with advanced telephony features, video conferencing, online fax, chat, toll-free and mobile and business analytic tools in one complete system.”
Disadvantages of VoIP Phone Service
Traditional small business phone systems have historically had a large advantage over VoIP phones from a call quality standpoint. However, due to increases in internet speeds and technology innovation among VoIP service providers, this is no longer the case.
The quality of VoIP calls is dependent upon the speed and stability of your internet connection. Because of this, one factor to consider is the amount of data you regularly transfer for other purposes, such as file transfers, audio or video streaming, etc. Most small businesses with a modern broadband internet connection will have ample bandwidth for multiple uses, but businesses in more remote areas or without a high-speed connection may still be better served by a landline phone system.
The VoIP phone system is also reliant on your electrical connection. Whereas a traditional landline phone system can often continue to operate during an internet or power outage, this is not the case with VoIP. However, many VoIP service providers can automatically route calls to a mobile phone or another backup number in the case of an internet or power outage.
Check out our VoIP speed test to see how your a VoIP phone service will likely perform with your business’ internet connection.
Are VoIP Phone Calls Secure?
Yes and no. VoIP phone calls can be intercepted or tapped, but this is true of mobile and landline phone calls as well. Phone companies, government, and law enforcement are able to listen in on your phone calls regardless of the technology you use — however, they require a warrant to do so.
Where VoIP phone services have an advantage is that the technology used to transmit the data also makes it easier to encrypt it. For example, Skype uses 256-bit AES encryption. This makes it harder for malicious individuals to intercept them.
Advantages of Landline Phone Service
Landline telephone services are a reliable and time-tested solution that every business will be comfortable with. They are stable, easy to maintain, and can function independently of power outages or internet connectivity issues that may affect VoIP services (while many phones require power to operate, the technology behind the phone line itself does not).
Landlines operate on a purpose-built network, which was designed for one purpose: telephony. And because it wasn’t built for any other purpose, it manages telephony extremely well. This means excellent call quality, nearly 100% uptime, highly private and secure connections, and the ability to scale and support large volumes of traffic.
VoIP technology was designed to operate on a data network, which means it can’t match traditional landlines in these areas — at least, not yet. So while VoIP technology continues to improve and narrow the gap between it and landline technology, there may still be some inherent compromises for you to consider alongside its cost savings.
Disadvantages of Landline Phone Service
The biggest disadvantage of landline technology is that the technology itself is obsolete. No further development or enhancements are planned for it, and there are plans to phase it out entirely in many areas of the world. This will also pose a challenge for repairs. Parts are relatively easy to come by now, but they will become scarce as the technology is replaced.
Compare this to cloud-based VoIP services, where your business benefits from its continuous technical enhancements and improvements and the service provider bears the full responsibility for any maintenance and repairs. And features like call transfer, intercom, call queuing, group ringing, and phone directories that come standard with most VoIP services will require additional, and costly, PBX hardware with a landline service. These costs add up quickly, especially when you factor in the cost of having a technician install and maintain it, making VoIP service a more economical solution.
The increasing prevalence of reliable high-speed internet connectivity is narrowing the last remaining gap that gave landline technology its remaining advantage. In fact, in our research for this article, one of the biggest challenges we faced was finding service providers who still offered traditional landline services for businesses — most are in the process of transitioning entirely to VoIP.
On the future of landlines, Fordyce said that they “are effectively dead.” This is because “using newer technologies means that [voice and fax communications] are more secure, cost-effective and flexible. For instance, with some providers, you can easily move from office to office or from your desk phone to your smartphone and still use the same phone number. And, the best providers make this seamless. You can’t do that with a landline.”
A Third Solution: Virtual Phone System
One other option to consider is a virtual phone system. While this may not be adequate for most small business’ needs, if you’re very small and your primary concern is to present a professional face to your clients then a virtual phone system may meet your needs.
Virtual phone systems are essentially a call-forwarding solution, where calls made to a main business number are immediately forwarded to the mobile or home phones of employees. These systems can include a variety of features, such as automated receptionists, voicemail, call forwarding, call screening, and online faxing. However, using a virtual phone system will mean that you’re still using your mobile phone plan’s minutes.
If you’re a very small business of only a few employees at most, especially if you don’t yet have a physical location for your business, then a virtual phone system such as that offered by Grasshopper may be a cost effective solution for you until you grow to need a VoIP system.
The Bottom Line
VoIP technology has advanced to the point where it’s no longer just an alternative to traditional landlines, but a complete replacement. A VoIP system can provide your business with additional features that weren’t previously available to you with a landline, a cloud-based service will relieve your business of the responsibility of managing and maintaining your system, and all at a reduced cost.