Microsoft Teams Phone System: What It Costs, How It Works, and Who Should Use It

Quick answer: Microsoft Teams Phone is the calling layer that turns Teams into a cloud business phone system. It costs $10 per user per month on its own, or $17 with a US domestic calling plan included, on top of your base Microsoft 365 or Teams license. It's free of extra charge only if you're on Microsoft 365 E5 or E7, and even then you still need a way to reach the public phone network.

Plenty of companies already live in Teams all day. Chat, meetings, file sharing, all there. Then someone asks the obvious question: why are we paying a separate vendor for phones?

It's a fair question, and for many businesses the answer is that they shouldn't be. But Teams Phone has some licensing quirks and connectivity decisions that catch buyers off guard, and the sticker price on Microsoft's page is rarely the full story. This guide walks through what you actually get, what it really costs, how to connect it to the phone network, and where it falls short, so you can decide before you sign anything.

Not sure whether Teams Phone fits? Talk to a TelSys communications specialist and we'll map your users, licenses, and locations to the cheapest setup that works.

What Is Microsoft Teams Phone System?

Microsoft Teams Phone (the product name has changed over the years; you may also see "Phone System" or "Business Voice") is Microsoft's cloud PBX. It lets people place and receive regular phone calls from the Teams desktop app, mobile app, browser, or a Teams-certified desk phone.

Is Teams a phone system on its own? No. A standard Teams license handles chat, meetings, and calls between Teams users. To dial an outside number you need two things: a Teams Phone license and a connection to the public switched telephone network (PSTN).

That distinction trips up a lot of buyers. Think of Teams Phone as the switchboard and the PSTN connection as the dial tone. You have to buy both.

What you get with Teams Phone

• Auto attendants and call queues for menu routing and department lines
• Voicemail with transcription, plus call transfer, hold, park, and forwarding
• Shared calling and common-area phones for lobbies, shop floors, and conference rooms
• Calling on any device: Windows, macOS, iOS, Android, browser, and certified desk phones
• Teams Phone Mobile, which ties a carrier mobile number to your Teams identity (available through participating carriers)
• Call recording and transcription, with Copilot summaries if you license Microsoft 365 Copilot separately
• Admin tools in the Teams Admin Center, with call data flowing into Microsoft's compliance tooling

How Much Does Microsoft Teams Phone Cost?

Short answer: Teams Phone Standard is $10 per user per month on an annual subscription. Add a US domestic calling plan and the bundle is $17. Pay-as-you-go calling is $13, and domestic plus international calling is $34. All of these sit on top of a Teams or Microsoft 365 base license.

Here's the current US list pricing, billed annually:

Prices are US list prices and vary by country. Always confirm on Microsoft's pricing page before budgeting.

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The mistake most budgets make

The $17 bundle includes Teams Phone Standard. You don't add $10 on top. That means the real per-user cost depends on what base license someone already has:

Microsoft 365 list prices shifted again with the July 1, 2026 increase, so check current base-license pricing when you build your own numbers.

Hidden costs worth budgeting for

• Certified hardware. Teams desk phones typically run roughly $150 to $400 each.
• Direct Routing equipment. If you run your own session border controller (SBC), expect hardware or virtual appliance costs plus configuration time. A hosted "Direct Routing as a Service" option shifts that to a monthly fee.
• Number porting and setup. Often a one-time charge per number or per project.
• Resource accounts. Auto attendants and call queues need their own licensing.
• Contact center add-ons. More on that below.

Realistic fully-loaded costs for many deployments land well above the headline $10, which is why side-by-side quotes matter.

Does Microsoft 365 E5 Include Teams Phone?

Yes. Teams Phone Standard is included with Microsoft 365 E5 (and E7) at no extra license charge. Microsoft's guidance is that you don't need to assign the standalone license to E5 users.

Two caveats:

1. You still need a PSTN connection (Calling Plan, Operator Connect, or Direct Routing) to call outside numbers.
2. Teams packaging has changed. Microsoft split Teams out of enterprise suites for new customers in 2024, then reintroduced "with Teams" bundles on November 1, 2025, while keeping no-Teams versions at a lower price. Check which version your tenant actually holds.

If only some of your people need phones, buying E5 for everyone just to get Teams Phone is rarely the cheapest route. Count your calling seats first.

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How Does Teams Phone Connect to the Phone Network?

Short answer: There are three main ways: Microsoft Calling Plans (Microsoft is your carrier), Operator Connect (a certified carrier plugs into Teams), and Direct Routing (you connect your own carrier through an SBC). A fourth option, Teams Phone Mobile, ties a carrier mobile number to Teams.

Choosing the right one is the most consequential decision in the project. A useful rule of thumb many voice engineers follow: use Calling Plans where you can, Direct Routing where you must, with Operator Connect as the middle path.

Microsoft Calling Plans

Microsoft hosts the PSTN service and sells you numbers and minute bundles. It's the fastest path to a working phone line and everything is managed in one place.

• Best for: small and mid-sized businesses in supported countries that want simplicity
• Watch out for: Calling Plans are available in roughly 30+ countries, so multi-country companies hit gaps quickly. Per-minute costs can also run higher than a negotiated carrier contract.

Operator Connect

Microsoft-certified carriers deliver calling directly inside the Teams Admin Center. You pick a participating operator, request numbers, and manage assignments in Teams without running your own SBC.

• Best for: companies that want a carrier relationship and broader country coverage without managing hardware
• Watch out for: you're limited to certified operators in each country, and the carrier sets the pricing. The feature set can be narrower than Direct Routing.

Direct Routing

You connect your own SIP trunks or existing PBX to Teams through a certified SBC. It works with nearly any carrier and covers the widest set of countries.

• Best for: larger or global organizations, businesses keeping existing carrier contracts, companies with analog devices, paging, or complex routing, and regions where the other options aren't offered
• Watch out for: more setup and ongoing management. If you don't have voice engineers in house, a managed "Direct Routing as a Service" provider removes most of that burden, at a higher monthly fee.

Side-by-side comparison

Plenty of companies mix them: Direct Routing at headquarters, Calling Plans at a small satellite office.

Teams Phone Features Worth Knowing About

Auto attendants and call queues

Build a virtual receptionist with menu options, business-hours routing, and queues that send callers to the next available person. These cover the front-door needs of most small and mid-size teams without extra software.

Devices and shared spaces

Teams works with certified phones from vendors like Yealink, Poly, Cisco, and AudioCodes, plus headsets, room systems, and the Teams app itself. For lobby phones and conference rooms, Microsoft licenses shared devices through the Teams Shared Space license (renamed from Teams Shared Devices in April 2026, with one license now able to cover up to four desks).

Resilience

Microsoft backs Teams Phone with a financially guaranteed uptime SLA of 99.99% or higher for services it operates. That guarantee doesn't cover third-party carriers or SBCs, so if you use Operator Connect or Direct Routing, ask your provider for their own SLA. For sites that must keep calling if the internet drops, the Survivable Branch Appliance lets users keep placing and receiving PSTN calls locally.

Security and compliance

Calls are encrypted in transit, and Teams offers end-to-end encryption for 1:1 VoIP calls (not PSTN calls). Call data can feed into Microsoft Purview for retention and eDiscovery, and compliance recording is available through certified integrations. Confirm any regulatory requirements you have (HIPAA, FINRA, and so on) against your specific setup.

AI and Copilot

Copilot in Teams Phone can summarize calls and surface action items for VoIP and PSTN calls, but it requires a separate Microsoft 365 Copilot license on top of everything above.

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Where Teams Phone Falls Short

No guide you can trust leaves this out. Here's where Teams Phone tends to disappoint:

• Licensing is layered. Base Teams license, plus Teams Phone, plus PSTN, plus resource accounts. Without a plan, costs creep.
• No built-in contact center. Auto attendants and queues handle basic routing. If you need skills-based routing, omnichannel, wallboards, or deep analytics, you'll integrate Dynamics 365 Contact Center or a certified third party like Genesys or NICE.
• Limited out-of-the-box CRM logging. Click-to-call and call logging into Salesforce and similar systems usually need a third-party connector.
• Closed ecosystem. Certified hardware is Teams-specific and often costs more than generic SIP phones. If you ever leave Teams, you'll likely replace it.
• Admin is spread across tools. Teams Admin Center, PowerShell, and Entra ID all show up in voice management. Some IT teams find that more fragmented than a single PBX portal.
• Calling Plan geography. Outside supported countries, you need Operator Connect or Direct Routing.
• Network dependence. Everything runs over the internet. Call quality depends on your bandwidth, QoS configuration, and Wi-Fi.

Teams Phone vs. Other Business Phone Systems

Short answer: Teams Phone usually wins when your staff already works in Teams and your calling needs are straightforward. Dedicated UCaaS platforms like RingCentral, Zoom Phone, or 8x8 tend to win on depth of telephony features, bundled contact center options, and simpler all-in-one pricing.

Versus a traditional on-premises PBX: no hardware room, no maintenance contracts, and users can take calls on any device. The trade-off is that legacy gear (analog lines, paging, fax) takes planning, usually through Direct Routing and an SBC.

Versus other cloud phone systems: Teams is strongest for companies standardized on Microsoft 365. Others are strongest if you want one vendor, one bill, and heavier call-center capability, or if your company isn't a Microsoft shop.

Comparing several platforms? Our Teams vs. Zoom vs. RingCentral vs. 8x8 breakdown goes deeper.

Who Should (and Shouldn't) Use Teams Phone

It's a strong fit if:

• Your team already spends the day in Teams and Microsoft 365
• You want calling, chat, and meetings in one app
• You're replacing an aging on-prem PBX and want users to work from anywhere
• You already hold E5 or E7 licenses
• Your call volume is moderate and contact center needs are light

Think twice if:

• You run a high-volume call center with demanding reporting
• You need tight CRM telephony integration without extra tools
• You operate in many countries and lack in-house voice expertise (plan on a managed provider)
• Most of your users aren't on Microsoft 365 at all

How to Set Up Teams Phone: 7 Steps

1. Audit your users and sites. Who needs a phone number, who only needs internal calling, and which sites have special requirements like paging or analog devices.
2. Check your licenses. Confirm each person's base Teams or Microsoft 365 license, and whether E5 or E7 already covers Teams Phone Standard.
3. Choose your PSTN option. Calling Plan, Operator Connect, Direct Routing, or a mix by location.
4. Get your numbers. Buy new numbers or port existing ones. Start porting early, since carrier timelines can stretch to weeks.
5. Assign licenses and numbers. Use the Teams Admin Center to assign Teams Phone licenses and phone numbers to users and resource accounts.
6. Configure policies and call flows. Set calling policies, emergency addresses (for E911-style location requirements), auto attendants, and call queues.
7. Pilot, then roll out. Test inbound and outbound calling, voicemail, transfers, and emergency calling with a small group before going company-wide. Train users on the basics.

Practical tips

• Run a network readiness test and set up QoS before go-live. Poor Wi-Fi causes more "Teams Phone is bad" complaints than the product itself.
• Don't cancel your old carrier until number porting completes and a pilot group has used the new system for a week or two.
• Document emergency calling behavior for remote users. It varies by location and configuration.

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