PBX System Components

How does it all work?

By Ryan Ayers
Updated: March 28, 2011

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

How a PBX Works

The basic function of a PBX system is to allow in-house calling between extensions and to easily enable routing for outside calls. For companies with many employees, this was an elegant and practical solution to everyday productivity and expense issues associated with their operations and communications.

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 line. When this same employee needs to place a call outside of the company network (an outside call), a line is easily attainable through the same exchange.

This system is able to 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 businesses have.


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

For a company that is researching deployment of their own PBX system, several components are necessary to purchase.

  • Exchange – The exchange itself is basically a large switching station that connects and routes calls, whether 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.

  • Gateway – The gateway is the component of a PBX system that connects the internal network to the outside world. This serves to 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 in order to complete the call.

  • Handsets – The actual telephone handsets used with PBX systems are generally specialized units that are designed with the increased set of functions that come with most PBX systems in mind. These handsets are equipped to enable users to dial inside extensions, connect to outside lines, utilize paging and intercom features, and to access other feature sets that are available within a given system.

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 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 service provider and manufacturer.

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