Abstract: A key telephone system which provides both key and private branch exchange (PBX) operational modes utilizes a plurality of digital telephone station sets which communicate with line circuits connected to a time division multiplex (TDM) telephone switching system. A single pair of leads (tip and ring) connect each station set to the line circuits. The TDM switching system has a processor with an operating system which carries out the processes which provide for the selection of key and PBX features. The TDM switching system also provides access to trunk lines which connect the telephone station sets via the TDM switching system to other switching systems, such as the central office of the public utility telephone company. In the station sets and in the line circuits, there are provided channels for signalling data and for PCM data. The PCM data may be voice, codes, or digital data.