What Is a Cloud Phone System and How Does It Work?


A cloud phone system (a.k.a. cloud PBX, hosted PBX, and hosted phone system) is a VoIP phone system that is accessible over a cloud-based IP network. It is delivered entirely over the Internet and managed completely off-site, cutting down upfront investments in telecommunications infrastructure. The deployment and setup are quick and easy, freeing companies from IT overheads. Normally, you can purchase the cloud phone service from a service provider and pay on a subscription basis.

The diagram below is a simplified flow of how a cloud phone system works:

Cloud Phone System Diagram

Simply put, with the business phone system hosted in the cloud, you make and receive calls using IP phones, mobile phones, or other devices, and the voice traffic is carried over an Internet connection, which in turn is connected to data centers sitting within the cloud.

What Are the Benefits of a Cloud Phone System?


Savvy businesses are joining the shift to cloud phone systems for lots of reasons.

Cloud Phone System Benefits

Cost Savings  


Every business, especially smaller companies, wants to cut operational costs as much as it can. A cloud phone system is a budget-friendly option as it greatly reduces the upfront investments on equipment and regular occurring maintenance costs. In most cloud phone system installations, the only capital expense is purchasing the IP phones. The cloud phone system usually works on a simple per-user basis so that businesses can scale up the capacity by simply purchasing new licenses. The system is always ready to grow with your business. On the other hand, under such a pricing model, the company has greater predictability of their phone system and better control of their budget.




A big advantage of using this type of business phone system is the ability to scale efficiently. As your business grows, your cloud phone system can scale to match your growth. With traditional phone systems, this requires additional hardware if you wish to scale up. But with cloud-based phone services, it is as simple as adding new users whether they are based at a physical office or working remotely. This makes it one of the best phone services for businesses, especially those experiencing rapid growth.


Limited Maintenance & Administrative Requirements


Hosted off-site, a cloud phone system is centrally managed by phone service providers, requiring little technical expertise and IT personnel from customers to set up and configure the system. The responsibility of keeping the system updated also shifts from the customer to the service provider, and businesses have an always current phone system without dedicating budget and resources to maintain it. The administration of a cloud phone system is also simplified as long as you have an Internet connection, which is highly useful for companies with offices in different locations. IT admin can change the user settings through the web interface at any time, anywhere, with a few clicks.


Mobility & Geographical Flexibility


With a cloud phone system, headquarters, branch offices, and teleworkers can all be unified, enjoying the same features and business continuity. For remote workers, the office is wherever they make it as long as the Internet connection is available. Some cloud phone system service providers offer free softphone apps that allow employees to use not only IP phones, but also desktops and smartphones as office extensions to make and receive calls, enabling employees to work from home, on the go, or as a full-time remote worker. Besides, cloud phone systems make it easy to connect geographically dispersed offices under one phone system, and the administrator can manage it from any location.


Bonus: Unified Communications


The cloud phone system is a perfect enabler of unified communications. Unified communications are all about making a wealth of communications channels and options into a single point of access. Cloud unified communications lead to more consistent and convenient communication with colleges and customers by allowing them to use their preferred channels. For example, when you are on a phone call using your web-based or desktop softphone and have to leave for a while, instead of having to hang up the phone, you can forward the call to your mobile phone and keep on the conversation. Some providers also offer values in enhanced collaboration, such as instant messaging, presence, CRM integration, and more.

Handy Features available on a Cloud Phone Systems



Leading cloud phone service providers offer unlimited advanced features, such as auto attendants, conference, voicemail, call queue, without additional charges to your basic monthly fee. For your reference, below are some features of Yeastar Cloud Phone System that hits the most popular list and you can watch the videos to learn more:

  • Call Forwarding

As a basic feature of a phone system, call forwarding allows an incoming call to a designated destination under different conditions such as “When Busy”, “No Answer”, and “Always”. For instance, you can choose not to answer a call and forward it to a colleague or to voicemail. Watch the video ->

  • AutoCLIP

AutoCLIP is a great help for handling returning calls. Here is the case. A salesman called his client but the call didn’t get picked up. Minutes later, his client called back. Since his information has been stored, his call would be routed to the salesman directly. Watch the video ->

  • SIP Forking

SIP forking refers to the process of “forking” a single call to multiple SIP endpoints. With SIP Forking, multiple SIP endpoints can be registered to one extension number, so that the incoming call can ring many terminals at the same time, and you can take the call from any of the devices. Watch the video ->

  • Ring Group

Ring Group is used to distribute calls effectively among employees in particular departments. When there is an incoming call, all phones within the group ring sequentially or concurrently, depending on the ringing strategy you specify. Watch the video ->

  • Distinctive Ringtone

Distinctive Ringtone distinguishes calls from different inbound routes. Calls coming from different inbound routes will play their own pre-configured ringtones. When a user hears the ringtone, he/she may notice the intention of the incoming call. Watch the video ->

  • Blocklist & Allowlist

Blocklist is used to block incoming and/or outgoing calls, while those in the Allowlist are allowed to call in/called or both regardless of the blocklist settings. Blocklist & Allowlist frees businesses from nuisance calls and builds a more secure phone system. Watch the video ->

  • IVR (Interactive Voice Response)

Interactive Voice Response [IVR] is an automated system that interacts with incoming callers using pre-recorded messages. Either by way of touch-tone keys or voice commands, users will be routed to relevant departments or recipients. IVR ensures a smooth experience for your customers and saves time for your staff. Watch the video ->

  • DID (Direct Inward Dialing)

Direct Inward Dialing provides you with a local phone number from a chosen city or country that can then be forwarded to your company’s PBX system. It enables your business to have a local presence globally without needing a physical location in the selected locality. Watch the video ->

  • Voicemail to Email

Voicemail to email sends your voicemail messages in real-time to your email as an audio file attachment. This allows you to retrieve and listen to your voice messages from a computer, smartphone, or any internet-connected device from any location. Watch the video ->

  • Conference

With ad hoc conferences wherever you and your team are located, you can initiate an instant meeting. This feature is as simple as adding your colleague’s phone numbers to invite them to the meeting. Calls will immediately be made to all the invited participants who only need to pick up the call to join the meeting