What Is PSTN and How Does It Work?

Legacy communications tech has profoundly impacted the digital communications infrastructure, with PSTN leading the way. How?

In this article, we’ll look at PSTN in detail, covering all aspects, from its history, basic setup, and how the technology works to some of the reasons for the global decline in usage, along with an overview of a better PSTN alternative.

What is PSTN? 

PSTN is short for Public Switched Telephone Network. PSTN refers to the traditional telephone system used for voice-oriented communications. It consists of multiple interconnected carriers to reliably connect people through standard phone numbers.

This telephone network is known as analog, landlines, Plain Old Telephone Service (POTS), or fixed lines. This system has been in general use since the late 1800s.

Using underground copper wires and circuit-switching, this legacy service has provided businesses and households with a reliable means to communicate with anyone worldwide for generations.

Related: How To Get a Business Phone Number (Everything You Need To Know)

PSTN History & Background

The roots of PSTN can be traced back to the late 1800s when inventors like Alexander Graham Bell and Elisha Gray released the first usable telephone systems. These early phones used copper wires and could only communicate point-to-point.

Manual switchboards caught on in the late 1800s and early 1900s. These exchanges allowed operators to plug and unplug cords to connect calls manually.

A major change came in the late 20th century with automated switching, which eliminated the need for manual call handling. This is when the traditional PSTN came into play and later spread worldwide. Undersea cables and satellite communications further facilitated international voice communications.

The 1970s and 1980s saw another change in the public telephone network, where digital technology emerged. Digital switching systems replaced analog systems, allowing for better call quality and data transmission over telephone lines.

Despite all the innovations in PSTN, it remained an old, sluggish, and limited technology. The need for better communication, especially in the business environment, gave way to VoIP phones.

PSTN phones are widely used and still accepted as a standard form of communication owing to their reliability and worldwide infrastructure. However, they’ve seen a steady decline over the last decade.

In fact, there are currently just 862 million fixed-line telephone subscriptions in use worldwide, the lowest this century. 

Many telecoms have gradually replaced outdated PSTN infrastructure with modern IP-based networks capable of handling both voice and data traffic.

How PSTN Works Today

Think of a PSTN as a combination of worldwide telephone networks, including telephone lines, fiber optic cables, switching centers, cellular networks, satellites, and cable systems. PSTN helps telephones communicate with each other.

Put simply, when you dial a phone number, your call moves through the network to reach its destination – and two phones connect. To fully understand how Plain Old Telephone Service (POTS) works, consider what happens when you dial a number from your phone.

From telephone handset to Central Office

Your telephone set converts your call (sound waves) into electrical signals and transmits them over network cables to a nearby exchange or terminal. The terminal collects these signals and determines where your voice (converted into electrical signals) goes next.

Central Office call routing

The call next goes to a tandem office (a regional hub that routes calls to distant central offices) or to a central office (for local calls). The central office routes the call through a fiber optic cable that converts the electrical signals into light pulses.

From the Central Office to the terminating number 

The relevant center office picks up the light pulses, converts them into electrical signals, and sends them to the target terminal. The destination terminal forwards the call through sound waves to the appropriate telephone number.

It’s natural to be confused about how PSTN works behind the scenes. Remember that it takes a few seconds for your call to reach its destination via fiber optic cables and a global network of switches. It’s like changing buses to reach your final destination, only faster.

Nationwide calling is the norm, thanks to interconnected telephone networks. But since the lines were installed, telecom providers have since become pioneers in data networks, which operate faster and carry VoIP and other communication technologies.

PSTN Architecture

PSTNs are all about switching, which forms the backbone of traditional telephone networks. When a call is made, switches create a wired connection between two phones, maintaining it for as long as the call lasts.

Here are the four main elements that make up the PSTN architecture.

1. The local exchange: A local exchange – consisting of one or more exchanges – connects subscribers to a PSTN line. Also known as a central office or a switching exchange, a telephone exchange can have up to 10,000 lines. All phones are connected to the local exchange in a specific area. The exchange identifies the number dialed to route the call to the correct destination.
2. The tandem office: Also known as a junction network, a tandem office serves a large geographic area with multiple local exchanges while managing switches between local exchanges. Let’s say you dial the number of a client living in the same city but in another suburb. In this case, your call routes to a tandem office from your local exchange. The tandem office forwards the signal to the local exchange closest to your client’s location.
3. The toll office: Every national long-distance switching takes place here. A toll office is connected to all tandem offices. For instance, if you dial a branch of your office in another city, your call will go through a toll office.
4. The international gateway: International gateways manage international call switching, routing domestic calls to the appropriate countries.

How Much Does PSTN Access Cost?

How much would installing and using a PSTN phone system in your home or office cost you?

Cost for Consumers

To get a PSTN phone connection at home, you need a telephone set and a PSTN provider. A decent phone can be bought from Walmart or Amazon for less than $60, while basic phone service with unlimited local calls costs up to $30 monthly.

If you need a plan with unlimited local and national calls, you can get one for less than $50 a month. You pay $90-$110 for the first month and then $30-$50 per month. Not bad for a single household phone line.

Cost for Businesses

Things change dramatically when you switch to companies. You need a separate line for each employee to get a PSTN phone system for your business. For this reason, most businesses prefer VoIP over traditional phone systems.

Small businesses with 10 employees or fewer can opt for a monthly plan for as little as $30 per month per connection. And, of course, you’ll need to purchase handsets too.

To connect up to 40 employees to the PSTN, a Key System Unit (KSU) is your best bet. It offers multiple features and is better than a regular phone line. Remember that a KSU is expensive to acquire; it costs approximately $800 or more per line

Private Branch Exchange (PBX)

Large companies with 40 or more employees typically opt for a Private Branch Exchange (PBX).

One of the types of PBX systems connects calls over the PSTN. Generally, PSTN is more used in residential applications and PBX systems in business environments. It offers call transfer, call conferencing, auto attendant, voicemail, call holding, and more business-specific features.

Since a PBX comes with hubs, switches, phone adapters, routers, and several telephone sets, it costs more. Most businesses use PBX phone systems because they’re easier to use. However, installing and managing them is expensive. Actual costs may vary depending on the number of features you want and the PBX’s complexity.

The installation and setup fee can be as high as $4,000. Monthly maintenance costs start at $600 and can go up to $2,000. The annual maintenance cost of a PBX can reach $10,000!

Analog-based PSTN phones are generally expensive. Most companies don’t like them and are switching to cloud-based phone systems.

PSTN Alternatives

PSTN systems offer a handful of features but aren’t particularly optimal for use in a business setting. It costs a lot and runs on old technology, both big red flags for faster and more efficient communication. On top, PSTN phone networks transmit limited data types.

PSTN vs. ISDN

Both PSTN and Integrated Services Digital Network (ISDN) carry voice over traditional copper-based telephone lines or fiber optic cables but with some inherent differences.

PSTN	ISDN
Traditional analog phone system	Digital telecommunications system
Supports basic voice calls and limited data services such as faxing and dial-up internet connections	Offers high-quality, faster, and reliable voice, data, and video transmission compared to PSTN
Not suited for business communications or higher call volumes	Suited for businesses and advanced communication needs
Cheaper but fewer features offered	Offers high-quality, faster, and more reliable voice, data, and video transmission compared to PSTN

⚠️ ISDNs aren’t used these days. It was one of the first forms of higher-speed internet in the days of dial-up.

PSTN vs. VoIP

Voice over Internet Protocol (VoIP) is another modern, more advanced, and reliable alternative to the PSTN. It’s also known as IP telephony, broadband telephony, or internet telephony, but means the same thing: your voice transmitted through the internet — voice over IP. 

Unlike PSTN, which uses a network of wires to route calls, a VoIP phone uses only a DSL or cable modem connected to the internet. The voice signal is converted into a digital signal that reaches its destination via the internet. However, if you dial a PSTN number from your VoIP, your call will be transmitted through an exchange. 

VoIP works for all types of calls, data transfers, and more. The PSTN uses circuit switching to connect calls. Business phone systems use digital packet switching. Digital switching is more efficient than circuit switching because data is sent and received as needed. A permanent connection isn’t maintained for the entire duration of the call.

Plus, VoIP systems don’t use dedicated lines. Instead, the data packets use routers and the internet. Each data packet travels through the least congested and shortest path that PSTNs aren’t smart enough to do.

Because packet switching is efficient and cost-effective, businesses now widely use VoIP. 

A 2022 study commissioned by Spiceworks Ziff Davis reported that 31% of organizations use a unified communications solution. This figure reflects a whopping 41% growth in VoIP since 2019. Lower cost, easier deployment, and more functionality make voice over IP the standard for business communications. 

Here’s a closer, feature-by-feature comparison between PSTN and VoIP to ease your choice.

Feature	VoIP	PSTN (Landline)
Connection type	Transmits data via an internet connection. Voice is converted into a digital signal.	Transmits voice via dedicated POTS line. The voice data travels in the form of electrical signals.
Switching	Uses packet switching that doesn’t require a dedicated line.	Uses circuit switching that requires a dedicated transmission line.
Bandwidth	Uses bandwidth as per requirement. VoIP networks don’t reserve any bandwidth in advance and can work with as low as 10kbps.	POTS requires up to 64kbps, and all the bandwidth is reserved in advance.
Upgrading	Upgrading a VoIP phone system is rather easy. You need to increase bandwidth and update the software. No additional hardware is required except telephone sets.	Upgrading a PSTN telephone system is complex. You need dedicated lines, and you have to add new hardware, which makes upgrading a pain.
Setup cost	It costs between $700 and $1400 to set up and install a VoIP phone system for 30 employees. Actual cost may vary depending on the features and add-ons you opt for.	It costs between $8000 and $12000 to set up and install a PSTN telephone system for 30 employees. Actual cost may vary depending on the features and add-ons you opt for.
Call cost	You’re not charged based on distance. You get free VoIP to VoIP calls. International and mobile calls might get a little expensive.	Calls are charged based on distance. Local calls are cheaper as compared to national or international calls. International and mobile calls are expensive.
Monthly cost	The monthly cost per user can range from $20 to $40.	monthly cost per user can range from $30 to $60.
Maintenance cost	VoIP doesn’t require a lot of maintenance. But if you do, it won’t cost you a lot of money since you mostly deal with software.	If you use a PBX for your business. In the case of a normal PSTN connection, you’ll need minimal maintenance.
Long-distance calls	Long-distance phone calls are up to 90% less expensive than traditional phone lines. Rates are as low as $0.01 per minute.	Long-distance calls come with tolls, special calling plans, and unexpected costs — some rates as high as $6 per minute.
Add-ons	Most VoIP phone networks come pre-loaded with all the add-ons and features, such as voicemail, call conferencing, auto attendant, virtual faxing, line monitoring, and more.	You get basic features for free such as call waiting, caller ID, and others. However, you’ll be charged extra if you need more features like conference, 3-way calling, etc.
Biggest advantage	Cost-effective for businesses of all sizes in terms of setup cost, maintenance cost, monthly cost, or upgrade costs.	Call stability is one of the best features of a PSTN. You’d rarely experience a call drop or voice distortion.
Biggest drawback	Your VoIP phone system won’t work in case of a power or internet outage. Legacy alarm systems will require a VoIP adapter to function.	PSTN is expensive for businesses. You have to spend a lot of money on maintenance, upgrades, and hardware as your business grows.
Softphones	Supports softphones to make and receive phone calls on the go without a physical phone.	Softphones aren’t available.
Overall efficiency	VoIP is quite efficient in terms of data transmission as well as cost.	Quite inefficient when it comes to data transmission and cost.
Security	VoIP security depends on your internet connection.	Highly secure since you use dedicated lines.
Phone set	You can use a softphone, an SIP phone, or your landline phone with an ATA. The SIP phones for businesses are available at different prices.	Telephone sets are inexpensive.
Integration	VoIP phone networks can integrate with any software or a third-party tool such as sales CRM or email marketing software. Interconnectivity isn’t a problem.	PSTN doesn’t support integrations.

Why VoIP Is Better Than PSTN

If you’re still using a PSTN, PBX, or just any tech running on Plain Old Telephone Service, consider these factors to invest in better business communications technology. Your wallet and customers will thank you.

1. Better Cost Savings

Switching from a PSTN phone network to VoIP is costly because you lose your existing hardware, but it will save money in the long run.

VoIP reduces local calling costs by a whopping 40%, and softphones can save your business up to $1,727 monthly. Switching from PSTN to VoIP can save you up to 65% monthly. 

2. Better Customer Service

VoIP phone systems come with several features at no additional cost. These features add functionality to your customer service team, improving response times, and amping up daily resolutions. 

For instance, with a call forwarding feature, you can automatically transfer calls to an available agent so your customers don’t have to wait. 

87% of consumers want brands to do their best to provide a seamless experience, and half of consumers expect a response within 24 hours. If you’re a small business or just starting out, think of the impact good customer service can have on building your reputation from the ground up. 

Related: 30 Customer Service Tips (with Examples)

3. Better Productivity

Happy customers mean better service, less stress, and smoother work processes, all contributing to employee morale, satisfaction, and productivity. VoIP plays a huge role in building and driving the pillars of productivity.

A joint study by Cisco and Sage Research has shown that unified messaging saves employees 43 minutes a day and mobile workers 55 minutes daily. Unified communications can help businesses with 100 employees reclaim up to 191 hours per day and $920,000 per year in productivity.

This powerful combination of customer satisfaction and advanced communications boosts a company’s overall performance and success.

4. Better Scalability

As you expand and onboard new employees, you need new phones. Using a PSTN means buying, installing, and adding new hardware and wiring for these phones. Costly, time-consuming, and slow!

Unlike traditional phone systems, VoIP is a better option for adding new lines as your business grows. Adding new connections is dead cheap, and you can do it instantly without upgrading the hardware.

If you can’t afford new telephones, your employees can use softphones on their computers, smartphones, or laptops. Scaling a VoIP phone network is also pretty easy compared to a PSTN network, which requires a lot of resources.

PSTN FAQs

Here’s what you need to know before replacing your PSTN with VoIP.

Ready To Switch To VoIP?

No matter how much you love your PSTN phone system, the tech is outdated and probably not a good fit for your business. You need a trusted, fast, and reliable cloud PBX – where Nextiva can help!

The POTS phones are great but are no match for a VoIP service provider. As some broadband networks phase out PSTNs, also known as PSTN switch-off, you’ll inevitably have to move on from PSTN. So why not sooner than later?