Three radically different PSTN connectivity models. Three radically different cost structures. One decision you will live with for three years. This guide strips the decision down to the licensing mechanics, the cost models, the hidden variables, and the decision framework that prevents a $2M telephony commitment from becoming a $2M telephony mistake.
In this guide: Teams Phone Standard foundations and what E5 includes (and does not include). Microsoft Calling Plans pricing and geographic limitations. Direct Routing architecture and cost model. Operator Connect as managed middle ground. Three-way comparison table. Hidden costs that change the calculation. Three enterprise scenarios with recommendations. Negotiation strategies to reduce your Teams Phone bill.
Microsoft Teams Telephony Licensing Assessment: We model all three PSTN connectivity paths against your calling patterns, geography, and existing carrier relationships, then negotiate the optimal licensing structure at EA renewal. Get a Quote →
Before choosing a PSTN connectivity path, every organisation needs the Teams Phone Standard licence (formerly "Phone System"). This is the platform layer that transforms Teams from a collaboration tool into a cloud PBX.
Teams Phone Standard provides the internal calling infrastructure: call routing, auto attendants, call queues, voicemail (with transcription), call park, call transfer, music on hold, and presence-based routing.
What it does not provide is external calling. The ability to make and receive calls to/from regular phone numbers (PSTN) requires one of the three connectivity options covered in this guide. For the broader M365 licensing context, see our M365 E3 vs E5 vs F3 comparison.
Included at no additional cost: Microsoft 365 E5, Office 365 E5, Microsoft 365 Business Voice (legacy).
Available as an add-on (~$8/user/month): Microsoft 365 E3, Office 365 E1/E3, Microsoft 365 Business Basic/Standard/Premium, Microsoft 365 F1/F3.
The most critical licensing fact in Teams telephony: M365 E5 includes Teams Phone Standard but does not include PSTN calling. An E5 user has the cloud PBX features (auto attendants, call queues, voicemail) but cannot dial an external phone number without a Calling Plan, Direct Routing, or Operator Connect configuration. "We bought E5, so we have Teams Phone" is true. "We bought E5, so we can make phone calls" is false without an additional PSTN connectivity decision. This catches procurement teams every time.
For organisations on M365 E3, the Teams Phone Standard add-on at $8/user/month is a significant line item. That is $96/user/year, or $480,000 annually for a 5,000-user deployment, before adding PSTN calling costs.
E3-to-E5 upgrade economics: The E5 upgrade ($21/user/month above E3) includes Teams Phone Standard plus Defender for Endpoint P2, Entra ID P2, Defender for Office 365 P2, Audio Conferencing, and the full compliance suite. For organisations that need both Teams Phone and one or more E5 security features, the E5 upgrade is frequently cheaper than buying add-ons individually. See our E5 security add-ons playbook for the calculation.
Microsoft Calling Plans are the simplest PSTN connectivity option. Microsoft acts as your telephone carrier. You purchase a Calling Plan licence for each user, Microsoft assigns phone numbers, Microsoft provides the PSTN trunk, and calling minutes are included in the plan. No SBCs, no SIP providers, no telephony infrastructure to manage.
| Plan | Included Minutes | Approx. Cost | Best For |
|---|---|---|---|
| Domestic Calling Plan | 3,000 min/user/month (US) | $12/user/month | Users who primarily call within their country |
| International Calling Plan | Domestic + 600 intl min/user/month | $24/user/month | Users who regularly call international numbers |
| Pay-As-You-Go | No included minutes; per-minute rates | $0/user/month + per-min | Low-volume callers (under 100 min/month) |
Coverage gap: Microsoft Calling Plans are available in approximately 30 countries, covering the US, Canada, UK, most of Western Europe, Australia, and Japan. They are not available in large portions of Asia, Africa, South America, the Middle East, or Eastern Europe. For multinational organisations, this geographic limitation is often the disqualifying factor: if you have offices in 40 countries and Calling Plans cover 25, you need a second PSTN connectivity solution for the remaining 15, creating a hybrid telephony environment more complex than either Calling Plans or Direct Routing alone.
5,000-user US organisation on M365 E5 with Domestic Calling Plans:
5,000 × $12/month = $60,000/month = $720,000/year.
This is pure PSTN connectivity cost. The cloud PBX (Teams Phone Standard) is covered by E5.
Same organisation on M365 E3:
Teams Phone Standard ($8) + Domestic Calling Plan ($12) = $20/user/month = $100,000/month = $1,200,000/year.
The Calling Plan cost model is simple, predictable, and scalable. But it is the most expensive per-user option, and the minute pools are use-it-or-lose-it (unused minutes do not roll over). Organisations with highly variable calling patterns (seasonal businesses, project-based firms) overpay during low-usage periods.
Direct Routing connects Teams Phone to the PSTN through your own infrastructure: Session Border Controllers (SBCs) deployed on-premises or in the cloud, connected to SIP trunking services from the telephony carrier of your choice. Microsoft provides the cloud PBX. You provide everything between Teams and the phone network.
Session Border Controllers (SBCs): Hardware or virtual appliances that bridge the Teams Phone environment and the SIP trunk. Certified SBC vendors include AudioCodes, Ribbon (formerly Sonus), Oracle, and Cisco. SBCs can be deployed on-premises (physical appliance in your data centre), in Azure (virtual SBC as IaaS), or through a managed SBC-as-a-Service provider.
SIP trunking: PSTN connectivity from a telephony carrier (Lumen, AT&T, Verizon, Telia, BT, or regional/specialised SIP providers). SIP trunks are priced per channel (concurrent call capacity) and per minute of PSTN usage, typically 30–60% cheaper per minute than Microsoft Calling Plans.
Phone numbers: Provided by the SIP trunking carrier. Existing phone numbers can be ported from legacy PBX providers to the SIP trunk provider. Number portability is typically easier and faster with Direct Routing than with Calling Plans (where Microsoft handles the port).
Direct Routing costs are composed of four layers:
5,000-user US organisation on M365 E5 with Direct Routing:
SBC infrastructure (amortised over 3 years) ≈ $1,000–$3,000/month.
SIP trunking (200 concurrent channels, avg 500 min/user/month at $0.01/min) ≈ $25,000/month.
Operational management (0.5–1.0 FTE or managed service) ≈ $5,000–$10,000/month.
Total Direct Routing PSTN cost: ~$31,000–$38,000/month = $372,000–$456,000/year.
Compared to Calling Plans at $720,000/year, Direct Routing delivers a 37–48% cost reduction, but requires infrastructure investment, telephony expertise, and ongoing operational responsibility.
Operator Connect is Microsoft's answer to the Calling Plans-too-expensive / Direct Routing-too-complex dilemma. Certified telecom operators deliver PSTN connectivity directly into the Teams admin centre. You select an operator, configure the connection through the Teams admin portal, and the operator manages the PSTN infrastructure. No SBCs to deploy, no SIP trunks to configure, but full carrier choice and competitive per-minute pricing.
Microsoft certifies telecom operators (AT&T, Verizon, BT, Deutsche Telekom, Telia, Lumen, and dozens of regional carriers) to connect their PSTN infrastructure directly to Microsoft's Teams Phone backend.
The connection is managed by the operator. Microsoft provides the integration API, the operator provides the PSTN trunk, phone numbers, and calling plans.
Provisioning happens through the Teams admin centre: select the operator, assign numbers to users, activate. No on-premises infrastructure required.
Operator Connect pricing is set by each operator independently. Microsoft does not control or publish Operator Connect rates. Typical pricing falls between Calling Plans and Direct Routing: $6–$15/user/month for domestic calling (compared to $12 for Microsoft Calling Plans and $5–$8 effective cost for Direct Routing).
Key pricing variables: Which operator you select (competitive pricing varies significantly). Whether you bundle with an existing telecom relationship (existing AT&T or BT customers often negotiate Operator Connect as a bundle). Whether the operator offers per-minute or flat-rate plans.
5,000-user US organisation on M365 E5 with Operator Connect:
Operator Connect at $8/user/month = $40,000/month = $480,000/year.
Compared to Calling Plans ($720,000), that is a 33% reduction.
Compared to Direct Routing ($372,000–$456,000), it is a 5–29% premium, but without the SBC infrastructure, operational staff, or carrier management responsibility.
| Factor | Calling Plans | Direct Routing | Operator Connect |
|---|---|---|---|
| PSTN cost/user/month (US, domestic) | $12 | $5–$8 (effective) | $6–$15 |
| Infrastructure required | None | SBCs + SIP trunks | None |
| Operational responsibility | Microsoft manages everything | You manage SBCs, trunks, quality, numbers | Operator manages PSTN; you manage Teams |
| Carrier choice | Microsoft only | Any SIP provider | Microsoft-certified operators |
| Geographic coverage | ~30 countries | Unlimited (any SIP provider globally) | Growing (50+ operators, varies by region) |
| Number portability | Supported (Microsoft-managed, can be slow) | Full control (carrier-managed) | Supported (operator-managed) |
| Existing PBX integration | No | Yes (SBC can bridge Teams and legacy PBX) | Limited (operator-dependent) |
| E911 / emergency calling | Included (Microsoft-managed) | Your responsibility (SBC/carrier config) | Operator-managed |
| Scalability | Add licences; instant | Add SBC capacity / trunk channels | Add through operator; near-instant |
| Best for | Single-country, low complexity, no IT telephony team | Multi-national, cost-sensitive, existing telephony expertise | Multi-national, moderate complexity, prefers managed service |
The per-user PSTN cost comparison above is necessary but insufficient. Several hidden costs materially affect the total cost of ownership, and they favour different models depending on your organisation's profile.
Communication Credits (all models): Toll-free numbers, dial-out from Audio Conferencing, and pay-per-minute overage charges across all three models consume Communication Credits, a prepaid balance that Microsoft debits per minute. Organisations that operate toll-free lines (customer service, sales hotlines) or use Audio Conferencing dial-out extensively can accumulate $5,000–$50,000/month in Communication Credit charges that do not appear in the per-user licence cost.
Common area phones (all models): Lobby phones, conference room phones, and breakroom phones do not need a full user licence. Microsoft offers the Common Area Phone licence at approximately $8/user/month (includes Teams Phone Standard + limited calling capability). Organisations with 50–200+ common area phones need to budget this separately. It is not included in user-based licensing.
Compliance recording (all models): Financial services, healthcare, and government organisations subject to call recording requirements need compliance recording. Teams does not include native compliance recording. Options: Microsoft Teams Premium add-on ($10/user/month), or third-party compliance recording platforms (Verint, NICE, Dubber, ASC) at $5–$15/user/month. For a 1,000-user contact centre, compliance recording adds $60,000–$180,000/year. A cost that does not appear in any PSTN comparison.
Audio Conferencing (E3 organisations): Audio Conferencing (the ability for external participants to dial in to Teams meetings via a phone number) is included in M365 E5 but requires an add-on (~$4/user/month) for M365 E3. Organisations deploying Teams Phone typically deploy Audio Conferencing simultaneously, and for E3 customers, it is another line item.
SBC and infrastructure costs (Direct Routing only): Physical SBCs (AudioCodes Mediant, Ribbon SBC Edge) cost $5,000–$30,000 per appliance depending on capacity. High-availability deployments require paired SBCs at each location. Virtual SBCs in Azure reduce hardware costs but add Azure VM consumption ($500–$2,000/month per SBC instance). Managed SBC-as-a-Service ($2–$5/user/month) eliminates infrastructure and operational burden. For small Direct Routing deployments (under 500 users), SBC-as-a-Service is typically more cost-effective than dedicated infrastructure.
Migration costs (one-time, all models): Number porting from legacy PBX (2–8 weeks per number block, potential for porting failures and temporary service disruption). User training and change management (switching from desk phone to Teams softphone or Teams-certified IP phone). Legacy PBX decommissioning (contract termination fees, hardware disposal). IT staff retraining (from PBX/Avaya/Cisco voice expertise to Teams Phone administration). Migration costs typically range from $50–$200/user as a one-time investment, regardless of PSTN model chosen.
A consulting firm with 2,000 knowledge workers across 5 US offices, on M365 E5, replacing an aging Cisco UCM deployment. Moderate calling volume (average 300 min/user/month), no international calling requirement, no existing telephony team, and a desire to simplify IT operations.
| Model | Monthly Cost | Annual Cost | Notes |
|---|---|---|---|
| Calling Plans | 2,000 × $12 = $24,000 | $288,000 | Zero infrastructure. Zero operational burden. |
| Direct Routing | SBC + SIP + ops ≈ $12,000 + amortised SBC | ~$156,000 | Requires telephony team or managed service. |
| Operator Connect | 2,000 × $9 (AT&T) = $18,000 | $216,000 | Carrier-managed, no infrastructure. |
Recommended: Calling Plans. The $132,000 annual premium over Direct Routing is offset by zero infrastructure investment, zero operational staff, and zero telephony management complexity. For a professional services firm without a telephony team, Direct Routing savings do not justify the operational responsibility. If the firm has an existing AT&T or Verizon relationship, Operator Connect at $216,000/year splits the difference with less complexity.
A manufacturing company with 8,000 users across Germany (HQ, 3,000 users), France, UK, Poland, Czech Republic, Romania, Turkey, and 5 additional countries. On M365 E3. Significant international calling between offices. Existing Telia SIP trunking contract. In-house telecom team (3 FTEs) managing current Avaya PBX.
| Model | Monthly Cost | Annual Cost | Notes |
|---|---|---|---|
| Calling Plans | 8,000 × ($8 + $12) = $160,000 (covered countries) | $1,920,000+ | Available in 8 of 12 countries. 4 require separate solution. |
| Direct Routing | $64,000 Phone Std + $18,000 SBC/SIP | ~$984,000 | Leverages existing Telia contract and telecom team. |
| Operator Connect | $64,000 Phone Std + $56,000 Telia OC | ~$1,440,000 | Telia is certified Operator Connect provider. |
Recommended: Direct Routing. Existing Telia contract, existing telecom team, existing SIP infrastructure, and multi-country presence make Direct Routing the clear winner. The organisation already bears the operational cost (telecom team); adding Teams Direct Routing is incremental, not greenfield. Calling Plans' geographic limitations disqualify it as a single solution. Operator Connect through Telia is viable but costs $456,000/year more than extending Direct Routing.
A hospital system with 15,000 users: 3,000 physicians and administrators (knowledge workers, M365 E5), 2,000 clinical support staff (M365 E3), and 10,000 frontline clinical and facilities workers (M365 F3). Compliance recording required for 1,000 revenue cycle and patient access staff. 200 common area phones across facilities.
The licensing layers: Knowledge workers: Teams Phone Standard included in E5 (3,000 users, $0 add-on). Clinical support: Teams Phone Standard add-on ($8 × 2,000 = $16,000/month). Frontline: Teams Phone Standard add-on ($8 × 3,000 phone-enabled, not all 10,000) = $24,000/month. Common area phones: 200 × $8 = $1,600/month. Compliance recording: 1,000 × $10 = $10,000/month. Total Teams Phone platform: $51,600/month before PSTN connectivity.
| Model | Monthly PSTN (8,200 users) | Annual PSTN |
|---|---|---|
| Calling Plans | $98,400 | $1,180,800 |
| Operator Connect (Lumen @ $8/user) | $65,600 | $787,200 |
| Direct Routing (existing infrastructure) | ~$35,000 | ~$420,000 |
Recommended: Operator Connect or Direct Routing hybrid. The healthcare system's size justifies Direct Routing economics, but the operational focus should be on clinical care, not telephony infrastructure. Operator Connect through an existing carrier relationship provides the cost savings of carrier competition ($65,600 vs $98,400 Calling Plans) without the infrastructure management. If the system has an existing telecom team and SIP infrastructure from the legacy PBX, Direct Routing for main campuses with Operator Connect for satellite clinics provides the optimal hybrid.
Bundle Teams Phone with EA renewal. Teams Phone Standard add-ons ($8/user/month at list) and Calling Plans ($12/user/month at list) are both negotiable within the EA negotiation. For large deployments (2,000+ users), the Teams Phone add-on can typically be discounted 10–20% when committed alongside the base M365 licence. Calling Plans at volume (5,000+ users) can yield 10–15% below list. The key negotiation point: Teams Phone deployment is incremental Microsoft revenue that the account team can use to demonstrate growth. Position it as a commitment conditional on pricing concessions across the broader EA.
Evaluate E5 upgrade vs add-on stacking. For E3 organisations, the per-user cost of Teams Phone Standard ($8) + Audio Conferencing ($4) + Defender for Endpoint P2 ($5.20) = $17.20 in add-ons. The E3-to-E5 upgrade at $21/user/month includes all three plus the full E5 security and compliance suite. If your organisation needs any two of these three add-ons, the E5 upgrade is almost certainly cheaper.
Negotiate Operator Connect rates independently. Operator Connect pricing is set by the telecom operator, not Microsoft. Your negotiation leverage is with the operator directly: volume commitment, multi-year term, bundling with existing telecom services (WAN, internet, SD-WAN), and competitive quotes from other certified operators. The most effective approach: obtain quotes from 3–4 certified operators, use competitive quotes as leverage with your preferred operator, and negotiate a 3-year rate lock to prevent annual price increases.
Right-size the user population. Not every employee needs PSTN calling. Audit actual calling patterns before deploying: pull CDR (Call Detail Records) from the legacy PBX to identify which users make/receive external calls and at what volume. In most organisations, 60–80% of users account for 95% of PSTN minutes. The remaining 20–40% can use Teams for internal communication without a Calling Plan, Operator Connect, or Direct Routing licence. A 5,000-user organisation where 3,500 users actually need PSTN saves $18,000/month on Calling Plans alone by not licensing the 1,500 users who do not call externally.
Use pay-as-you-go for low-volume callers. Microsoft's Pay-As-You-Go Calling Plan costs $0/user/month with per-minute charges drawn from Communication Credits. For users who make fewer than 50–100 minutes of external calls per month, PAYG is dramatically cheaper than a $12/month Domestic Calling Plan. Segment your user base: heavy callers (300+ min) get Domestic or International plans; moderate callers (100–300 min) get Domestic; light callers (under 100 min) get PAYG. This segmentation typically reduces total Calling Plan spend by 15–25%.
Why Teams Phone is under-negotiated: Teams Phone licensing is one of the most under-negotiated line items in the Microsoft EA, partly because telephony decisions are made by the telecom team, not the Microsoft licensing team, and the two rarely coordinate. The result: the Microsoft team negotiates E5 or E3 pricing without considering the Teams Phone add-on, the telecom team selects a PSTN model without evaluating E5 upgrade economics, and nobody models whether Operator Connect from the existing carrier is cheaper than Microsoft Calling Plans. Our EA Optimisation Service includes Teams telephony licensing as a standard analysis component.
— Fredrik Filipsson, Co-Founder, Redress Compliance
Teams Phone Standard (the cloud PBX platform) is included in M365 E5 at no additional cost. However, PSTN connectivity, the ability to make and receive calls to/from external phone numbers, is not included in any M365 plan. E5 gives you the phone system. You must separately arrange external calling through Microsoft Calling Plans, Direct Routing, or Operator Connect. This is the single most common misunderstanding in Teams telephony licensing: E5 includes the platform but not the dial tone.
Yes. Microsoft explicitly supports hybrid PSTN connectivity. You can assign Calling Plans to users in countries where they are available and use Direct Routing or Operator Connect for users in countries where they are not. You can also use Direct Routing for high-volume calling users (where per-minute SIP trunking is cheaper) and Calling Plans for low-volume users (where operational simplicity outweighs cost). The Teams admin centre manages all three connectivity models simultaneously. The hybrid approach is common for multinational organisations and often produces the lowest total cost, but it requires careful planning to ensure every user has exactly one PSTN connectivity path assigned.
M365 F1 and F3 do not include Teams Phone Standard. Frontline workers who need PSTN calling require the Teams Phone Standard add-on ($8/user/month) plus a PSTN connectivity solution. Not all frontline workers need PSTN. Many need only internal Teams communication (chat, meetings, shift management), which is included in F1/F3. The key question: does this frontline worker need to dial or receive calls from external phone numbers? In healthcare, retail, and manufacturing, typically 20–40% of frontline workers need PSTN capability (patient-facing staff, store managers, supervisor roles), while the remainder operate with internal Teams communication only.
Generally yes. Operator Connect pricing from competitive carriers typically falls 15–40% below Microsoft Calling Plans for domestic calling, depending on the operator and the volume committed. The savings come from carrier competition: Microsoft Calling Plans are a single provider at a fixed price; Operator Connect opens the market to dozens of certified carriers competing on price. However, the comparison must be total cost: some operators charge separately for phone numbers, E911 compliance, and international calling that Microsoft bundles into the Calling Plan price. Always compare total monthly cost per user (including all fees), not just the headline per-minute rate. Obtain quotes from 3–4 certified operators before committing.
For any deployment exceeding 1,000 phone-enabled users, the Teams Phone licensing decision involves enough variables (base licence tier, PSTN connectivity model, geographic coverage, calling patterns, compliance recording, common area phones, legacy PBX migration) that independent advisory consistently identifies the optimal architecture and negotiates better pricing than internal teams working without cross-client benchmarks. The value is threefold: PSTN model selection based on your specific calling patterns, geography, and operational capacity (not based on which vendor presents first); licence optimisation across user personas ensuring only phone-enabled users receive phone licences; and EA negotiation integrating Teams Phone pricing into the broader Microsoft commitment for maximum leverage.