From the October 2004 issue of Entrepreneur

Rent or buy: it's a familiar calculation for businesses maximizing cash flow. Just as you might outsource Web site hosting or expensive programs, you can check out VoIP telephone systems before buying PBX hardware by signing up for IP Centrex.

It's not the same as the analog Centrex services the Bells and other large telecom companies offer small and midsize businesses. Like other all-digital systems, IP Centrex benefits from the cost-effectiveness of an Internet transmission backbone, the growing need of businesses for broadband data streams, and its ability to mingle voice and data.

IP Centrex preserves the advantages of older analog key systems-minimal upfront capital investment, with no cables to pull and no on-site telephone equipment to buy beyond desk sets. System management, security, upgrades and redeployment are headaches for your service provider, not you.

But IP Centrex differs from traditional analog services in its ability to deliver a broader array of mixed voice/data services more easily and cheaply. Call forwarding, caller ID, multicaller conferencing, four-digit dialing of free calls among branch offices and even key customers, and calls that follow you home aren't special requests with big price tags. They're part of the package. So is a universal inbox for voice mail and e-mail; integration with other applications, like sales force management and CRM; and simplified Web-based configuration of usage profiles by both the system administrator and users themselves.

You get the greater features and no-hassle moves, adds and changes typical of all-digital VoIP services. You don't get the circuit-switched technology baggage, monopoly pricing and bureaucracy typical of the telephone system we all grew up with.

IP Centrex differs from consumer-oriented VoIP services (from companies like Vonage) in that service providers-such as BellSouth, Covad Communications, or VirtualPBX -have business-class packages with dedicated IP networks, VPN security, and service agreements that guarantee call quality and system uptime.

"We set up a private BellSouth network using Internet protocol, but with better security, predictability and performance," explains Mark Kaish, vice president of Next Generation Solutions for BellSouth in Atlanta. "Its carrier-class service isn't subject to the variability or other problems of the Internet at large."

But IP Centrex will cost more than consumer-oriented VoIP. After a $150 setup fee, VirtualPBX charges $5 to $15 (per extension) per month, plus per-minute phone charges. As IP alternatives proliferate, competition will drag down everyone's prices. Long term, you'll probably want the local control over your data and the quick network reconfiguration of an on-premise IP PBX. But for a fast-growing entrepreneurial company, IP Centrex could be a quick and easy solution to bringing VoIP phone service to one or more of your locations.