PBX (Private Branch eXchange) is a privately owned telephone switching system for handling multiple telephone lines without having to pay the phone company to lease each line separately.
Normally a telephone line is connected to the phone company's local Central Office through "a trunk." The Central Office is responsible for routing incoming and outgoing calls. It also provides other services like voice mail, call forwarding, caller ID and so on. For this service the phone company receives a monthly fee.
A company requiring dozens or even hundreds of phones would quickly incur a very large phone bill!
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A PBX essentially takes the place of the phone company's Central Office within the company by acting as the exchange point, routing calls. With a PBX in place, each phone only needs an extension, not a phone number, and the PBX handles all calls made from desk-to-desk within the company.
When an outside call is required, an access number is dialed first, usually a "9" (in the United States). The PBX then transfers the call to the phone company's Central Office. From there the call is routed normally.
A PBX reduces cost because the company only pays for the number of lines liable to be connected at any given time to the outside. If a company has 100 telephones, it's unlikely everyone will be making an outside call at once. Perhaps only 10% will require an outside line at any given time. Therefore the company would lease 10 lines from the phone company rather than 100.
PBX systems can be bare bones or feature-rich, depending on what the customer is willing to pay. Voice mail, call forwarding, conferencing, intercoming, and transferring are just some of the options available.
A significant feature of a PBX is control over the numbers that can and cannot be dialed from within the system. This can prevent calls abroad, to 900 numbers, or to other costly numbers that would be available without the system in place.
Small PBXs that can be used in a home or small business can be purchased for about $100 - $1,000 USD, depending on features. Larger PBXs handling up to 75 lines start at about $1,000 and can go as high as $10,000. Robust systems handling up to 20,000 lines are also available. These systems start at about $10,000 and can range up to ten times that amount. Asterisk, a promising free and open source version of PBX software is currently being developed; running Asterisk on a dedicated computer along with switching to VoIP can save you even more on your monthly phone costs.
Well known PBX systems include Avaya's Definity series (System 75 and System 85) and Northern Telecom's Meridian systems. Mitel, Siemens and NEC are among other popular PBX manufacturers.