PSTN vs. VoIP: Which Is Right For Your Business?

Picture this: A customer hangs up after getting a busy signal calling your sales phone number.

Scary, thought, isn’t it? That’s what you risk with a traditional phone setup that relies on analog phone lines.

These days, small businesses depend on a reliable and cost-effective approach to business communications. You shouldn’t limit your success by as far as landline copper wires can reach.

Voice over Internet Protocol (VoIP) is at least comparable to the telephone lines of the past but with dozens of advanced calling features.

As you weigh your options between PSTN vs. VoIP, we’ll make the case for both types of phone systems and technologies. But there are a few cases when PSTN beats out voice over IP.

New to VoIP? Check out our definitive guide to VoIP — it’s beginner-friendly!

But first, let’s tackle the acronyms.

Phone System Acronyms

Let’s navigate the alphabet soup – PSTN, VoIP, PBX, POTS, and SIP and give you a quick primer on them.

PSTN

PSTN is short for Public Switched Telephone Network and describes the physical network of dedicated lines connecting telephones globally. These phone lines transmit your voice data in analog format, allowing you to reach any other user on the network with their phone number. When referring to PSTN, it means you can dial anyone across the public telephone network consisting of area codes, switching centers, and various exchanges. The emphasis here is on the network established between telecom providers.

POTS

POTS stands for Plain Old Telephone Service, which is an informal alias for PSTN technology. It emphasizes the fundamental nature of traditional landline telephony, relying on dedicated copper wires and basic voice calls.

POTS lines refer to the actual technology consisting of analog wiring that runs from your building to a local central office. These voice signals traverse over various switches and network terminals to reach the PSTN.

PBX

PBX means Private Branch Exchange and is how a company establishes phone service for multiple users within an organization. PBXs can operate on a PSTN system or VoIP phone system.

Traditional on-premises PBX systems require a significant level of telecom expertise to manage, but VoIP flavors are much easier to set up and manage. Speaking of VoIP …

VoIP

VoIP is short for Voice over Internet Protocol. VoIP means that voice signals are sent over an internet connection through a business phone service provider rather than through analog-based phone lines.

SIP

Session Initiation Protocol (SIP) is the technical foundation of Voice over IP. A lot of real-time communication apps use this technology for high-quality audio, video, and messaging.

Most commonly, SIP is used for SIP trunking, which is like a bulk set of VoIP lines often used for call centers.

PSTN vs. VoIP Differences

If you’re thinking of switching to a new business phone service, you should know some key differences between VoIP vs. PSTN.

PSTN

PSTN refers to the traditional landline phone networks that have been around for decades. PSTN uses analog signals transmitted over copper wires to make phone calls. The telecommunications system relies on dedicated circuits being opened between exchanges to connect your call to the other person — hence long-distance charges.

In addition to this, it’s important to note that the PSTN uses a variety of signaling techniques to manage the calls:

• Dual-tone multi-frequency (DTMF): Used by touch-tone telephones where each key press sends a specific sound frequency. This system replaced older pulse dialing used by rotary phones.
  
• In-band Signaling: Early signaling method where the signals (like dial tones and busy signals) are carried over the same path as the voice. This was susceptible to interference and fraud.
  
• Out-of-Band Signaling (Common Channel Signaling): Modern method where signaling (call setup and control information) travels on a separate digital channel, not through the voice channels. SS7 (Signaling System #7) is the standard set of protocols used globally, allowing more efficient and secure management of calls and services like caller ID and call forwarding.

How PSTN Works

To fully understand how the PSTN works, we need to break down its components and also the process involved in establishing a phone call. 

Key Components of the PSTN:

• Telephone Lines: Copper wires that connect homes and businesses to the local exchange. These are also known as ‘subscriber lines’ or ‘local loops’.

• Exchanges: Facilities that house switching equipment to connect calls locally or route them to long-distance services. These can be small for rural areas or massive buildings in cities.

• Trunks: Larger capacity lines that connect exchanges to each other. Unlike the local loops, trunks carry multiple calls simultaneously using multiplexing techniques.

• Switches: Devices at exchanges that connect incoming calls from one line to another, enabling communication between two endpoints. Originally mechanical, modern switches are digital.

• Signaling Systems: Methods used to communicate information necessary to set up and manage telephone calls.

Call Setup Process in PSTN:

Initiating a call:

• The caller lifts the handset, which sends a signal to the local exchange.
  
• The exchange provides a dial tone, indicating readiness to receive the dialing input.
  
• The caller enters the destination number using DTMF tones.

Routing the call:

• The local exchange processes the received number and determines the route for the call through the network of switches and trunks.
  
• If the call is local, it might only pass through one or a few switches. For long-distance calls, the routing becomes more complex and may involve several exchanges and trunks.

Sending the ring signal:

• Once the route to the destination is established, the exchange sends a ring signal to the receiver’s phone and a ringback tone to the caller, indicating that the call is being connected.
  
• The receiving phone rings until the call is answered or disconnected.

Establishing call connection:

• When the receiver picks up the handset, the circuit between the two phones is completed, allowing voice signals to flow through the network.
  
• This connection is maintained as an open circuit for the duration of the call, with voice converted to electrical signals via the microphone, transmitted across the network, and converted back to sound at the receiver’s handset.

Disconnecting the call:

• Once the conversation is over, hanging up the handset at either end disconnects the call.
• This signals the exchange to disconnect the circuit and release the network resources.

The PSTN’s analog nature and dedicated circuit for each call provide a very reliable and high-quality voice transmission but lack the flexibility and scalability of more modern technologies like VoIP. The transition to digital has been driven by the need for more efficient use of the network and broader service capabilities.

Voice over Internet Protocol (VoIP)

VoIP is a better phone service technology that works using the Internet. With VoIP, your voice is converted into digital data packets that are transmitted over the Internet, similar to how emails or downloading files work. Since the data packets take different pathways through the Internet, no dedicated circuits are kept open.

VoIP Protocols

• Session Initiation Protocol (SIP): The most commonly used protocol for initiating, maintaining, and terminating real-time sessions that include voice, video, and messaging applications.

• Real-Time Transport Protocol (RTP): Carries the actual stream of digital voice data (and sometimes video) in packets across the network.

• Real-Time Transport Control Protocol (RTCP): Works alongside RTP to provide control and quality feedback for the data delivery.

How VoIP Works

VoIP involves several key components and processes to effectively convert, transmit, and reconstruct voice communications over IP-based networks.

Key Components of VoIP:

• IP Phones or Softphones: These can be physical devices similar to traditional telephones or software-based phones that run on personal devices like computers or smartphones.

• VoIP Servers: Typically manage calls within the network, handling functions such as call routing, voicemail, and connectivity with traditional phone networks.

• Media Gateway: Converts data between different formats or networks, such as converting VoIP calls to a format suitable for the PSTN.

• Session Initiation Protocol (SIP) Servers: Facilitate the setup and teardown of VoIP calls, handling signaling and control for initiating, maintaining, and terminating communication sessions.

• Routers and Switches: Network devices that manage traffic within VoIP networks, ensuring data packets are sent to the correct destination.

VoIP Call Process:

Initiating the call:

• A user initiates a call through a SIP invitation from a SIP client (softphone or IP phone).
• The SIP server processes the invitation and sends a request to locate the recipient of the call across the network.

Signal setup process:

• SIP messages are exchanged between the initiating and receiving SIP clients to negotiate session parameters using SDP (Session Description Protocol) contained within the SIP messages.
• These parameters include codec selection (e.g., G.711, G.729), which determines the method of compressing and decompressing the voice data.

Transmitting voice data:

• Once the session parameters are agreed upon and the call is accepted, RTP packets begin to flow between devices. 
• Each packet contains a portion of the encoded audio data, packet sequence information, timestamp, and payload type. 

Reception and reconstruction of voice data:

• At the receiving end, RTP packets are decoded back into a voice signal that can be heard by the receiver.
• Packets may arrive at different times or out of order. However, the receiving device uses sequence information and timestamps to reorder packets and smooth out delays, ensuring a coherent conversation.

The RTCP monitors delivery statistics and network conditions, such as packet loss and jitter. This information can be used to adjust the quality of the service dynamically. For instance, switching to a lower bitrate codec during periods of high network congestion to reduce bandwidth usage. 

The main advantage of VoIP is that it allows making phone calls using any IP address rather than needing a landline. VoIP also tends to have lower costs compared to traditional landline services. The sound quality can be lower than landlines in some cases, but VoIP call quality keeps improving.

VoIP vs. PSTN Comparison

Function	VoIP	PSTN
Technology	Digital – transports calls over the internet	Analog – transports calls over copper phone lines
Cost	Lower monthly fees typically	Higher monthly fees typically
Hardware	Requires IP phones or adapter	Uses traditional landline phones
Flexibility	Easy to add numbers and lines	Adding new lines requires new wiring
Reliability	Dependent on internet connection	Very reliable, dedicated circuits
Maintenance	Primarily software updates and network management.	Requires physical maintenance of lines and hardware.
Features	Advanced features like video calls, call routing, virtual numbers, conference calling, etc.	Basic features like call forwarding, caller ID.
Integration	Seamless integration with CRM systems, email, voicemail to email, etc.	Minimal integration with other digital services.
Mobility	High mobility; users can access their phone system from anywhere with an internet connection.	Limited to physical locations connected by wiring.
Network Management	The user or provider can manage, allowing more control over system configuration and customization.	Managed by service providers with little control by users.
Business Scalability	Dynamic configuration options accommodate business changes, including remote work setups.	Static and limited adjustment to business growth or downsizing.

🗞️Case Study: Media Publisher Thrives with Flexible Phone System 👇

VoIP & PSTN Limitations

PSTN limitations

Here are some of the common issues with PSTN that compel business owners to move on from traditional phone lines.

Infrastructure Dependency

PSTN relies heavily on physical infrastructure that includes copper lines, telephone poles, and exchange centers, which can be susceptible to damage from natural disasters and aging. This infrastructure requires regular maintenance, which adds to its operational costs. 

Additionally, expanding service or adding new lines requires physical construction that can be both costly and time-consuming, making it less adaptable to rapid changes or business growth.

Cost Considerations

Operating a PSTN system incurs higher costs due to the need for ongoing maintenance and repairs of its extensive physical network. Moreover, the charges for long-distance and international calls are typically higher with PSTN compared to VoIP. These costs can accumulate significantly for businesses that require frequent international communication, making PSTN an expensive option in the globalized market.

Scalability Issues

Scaling up a PSTN system can pose logistical challenges and often requires significant financial support. Adding additional lines and hardware involves not just cost but also considerable effort, which can hinder a business’s ability to adapt quickly to changing demands.

Now, let’s take a look at some of the limitations of a Voice over IP system.

VoIP limitations

When researching VoIP technology, there are a few concerns that you want to plan around. In most cases, most businesses are unaffected by these — we’ll share solutions below.

• Reliability issues: VoIP call quality and functionality depend on a high-speed internet connection. Slow internet speeds or high traffic volumes can cause lag, jitter, or call drops. Power outages will cause the hosted VoIP phone system to go down unless proper battery backups are connected.
  
  ✅ Solution: Test your internet connection for VoIP call capacity and set up redundant battery backups on critical systems.
  
• Emergency call limitations: VoIP users must register their location so 911 operators can identify their address. Without registration, operators may be unable to pinpoint the caller’s location. In a power outage, VoIP users typically cannot make emergency calls unless using a softphone installed on their mobile device.
  
  ✅ Solution: Update the actual physical address (E911) of each user on your VoIP phone system. Recommend users download the free VoIP app that works on Wi-Fi and cellular connections.
  
• Legacy hardware challenges: Using VoIP requires new IP phone hardware or adapters for analog phones. Installation and setup take some time across an office. As a cloud-based system, VoIP relies on servers rather than direct copper wiring. This transition could mean replacing old telephony equipment.
  
  ✅ Solution: Retire analog phone equipment that no longer meets business needs, such as fax machines. Set up the equivalent of cloud communication, such as online faxing.

Comparing VoIP vs. POTS Lines

Function	VoIP	POTS
Connectivity	Uses data networks, no new infrastructure needed	Requires dedicated voice network with special techs
Call Capacity	Low bandwidth needs, burstable	Reserved bandwidth per call, costly to upgrade
Remote Extensions	Easy software additions	Physical lines required
Resilience	Forwards calls on power outage	Stays active in power outage
Call Management	Includes call waiting, forwarding, transfer	Add-ons cost extra fees
Emergency Calls	Not location traceable	Location traceable
Pricing	VoIP is often priced per user monthly. Many advanced features are included in one fee.	POTS is often priced per line monthly with additional fees for long-distance or other calling features.

POTS uses dedicated infrastructure, so it has high resilience and emergency call traceability. But upgrades require new analog lines and hardware, which is costly as the business grows.

VoIP also enables value-added features like auto-attendants, voicemail-to-email, and softphones. Upgrading is a lower cost since it leverages your existing data network.

20 Popular VoIP Phone System Features

• Audio conferencing – Host large conference calls with many participants with your same VoIP provider
• Auto-attendant – Customizable automatic voice greetings that route calls to correct people and departments
• Call analytics – Advanced analytics on the number of calls, durations, missed calls, and more
• Call forwarding – Direct calls to your cell phone, another phone number, or a voicemail box automatically based on business owners or your availability.
• Call pulling – Switch phone devices on the fly, such as a desk phone and your mobile phone.
• Call queuing – Manage calls so incoming calls wait in line to be answered
• Call recording – Record inbound and outbound calls for quality assurance
• Call rejection – Block incoming calls if they don’t disclose their caller ID
• Group calling – Seamlessly connect multiple people/offices on a single call
• On-hold music – Upload your own audio files instead of default hold music
• Presence detection – See if colleagues are available, busy, away, and more
• Softphones – Make and receive calls on computers and mobile devices
• Team messaging – Real-time text chat integrated with the phone system
• Text messaging – Send and receive SMS or MMS text messages from your VoIP line
• Toll-free phone numbers – Get a trusted toll-free number (800, 866, 888) and pay pennies per minute for incoming calls. 
• Unlimited calling – No per-minute fees for domestic or international calls
• Video conferencing – Meet with team members and clients over HD video conferencing
• Virtual phone numbers – Set up a virtual phone number in any area code desired, regardless of your physical location
• Voicemail transcription – Convert voicemails into text for reading inside your email or text messages

The Bottom Line on PSTN vs. VoIP

While PSTN has its place for some use cases where internet access is limited or legacy telecom installations prevent an upgrade, the best option for businesses is VoIP phone service.

VoIP beats PSTN in every category:

• Scalability: Easily add or adjust the number of lines or users whenever your business needs.
• Advanced calling features: Access dozens of calling features your team needs to help customers, collaborate, and outmaneuver competitors.
• Emergency services: Have confidence that you can dial 911 accurately with E911 capabilities.
• Redundant internet service: Reliable broadband is the norm, and even if you lose service, cellular (4G/5G) has you covered.

Change can be hard, but resisting change is even harder. 

Go easy on yourself and choose a reputable business VoIP provider. See why over 150,000 businesses choose Nextiva for their company’s phone service. Get a customized quote today!