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A PBX is a telephone switch located on the premises of a company. It allows telephone users to set up circuit-switched voice calls among other users in the same company or to set up calls across the public-switched telephone network. People calling into the company dial a single number. The PBX routes the call to the appropriate extension. Internal users have a number of outgoing lines for making calls over the public network. By connecting internal users with other internal users, the PBX avoids the need for an internal call to be set up across the telephone company's switch.

The telephone company CO (central office) is the location of the switches that connect telephones for an entire town or metropolitan area and provide trunks to the much larger regional, national, and global telephone system. The PBX moves part of this switching system to the customer premises. As shown in Figure P-2 (see book), telephones (called extensions) connect to the PBX. The PBX is then connected to the telephone company's central office via a dedicated line, such as a digital T1 line that supports 24 voice or data channels.