The Guide to Microsoft Teams Phone System

The traditional office telephone is disappearing. Across the United Kingdom, businesses of every size are replacing their aging PBX systems and dedicated phone lines with cloud-based voice solutions that integrate seamlessly with their existing collaboration tools. At the forefront of this transformation is Microsoft Teams Phone System — a cloud-based telephony solution built directly into Microsoft Teams that replaces traditional phone systems with a modern, flexible, and feature-rich alternative.

If your organisation already uses Microsoft 365 and Teams for chat, video meetings, and file collaboration, adding Teams Phone System is a natural evolution that eliminates the need for separate phone hardware, separate phone contracts, and separate management consoles. Your employees make and receive calls using the same Teams application they already use every day — from their laptop, their mobile phone, or a dedicated Teams-compatible desk phone.

This guide covers everything UK businesses need to know about Microsoft Teams Phone System: what it is, how it works, what it costs, how to deploy it, and whether it is the right choice for your organisation.

What Is Microsoft Teams Phone System?

Microsoft Teams Phone System (formerly known as Phone System in Office 365, and before that Cloud PBX) is a cloud-hosted telephony service that provides Private Branch Exchange (PBX) functionality through Microsoft 365. In practical terms, it turns Microsoft Teams into a full-featured business phone system capable of making and receiving calls to and from landlines, mobiles, and international numbers — not just Teams-to-Teams calls.

The system supports all the features businesses expect from a modern phone system: call transfer, call hold, call forwarding, voicemail with transcription, auto-attendants (the automated menus that greet callers and route them to the right department), call queues, music on hold, call recording, and detailed call analytics. All of these features are managed through the Teams admin centre — a web-based console that replaces the complex, specialist hardware that traditional PBX systems require.

To make and receive external calls (calls to and from regular phone numbers), Teams Phone System needs a connection to the Public Switched Telephone Network (PSTN). Microsoft offers several options for this connection, each with different trade-offs in terms of cost, flexibility, and complexity.

Why the UK PSTN Switch-Off Matters

The timing for considering Teams Phone System could not be more relevant for UK businesses. Openreach, the infrastructure division of BT, is in the process of switching off the traditional Public Switched Telephone Network across the United Kingdom. The analogue and ISDN phone lines that have served British businesses for decades are being retired, with a target completion date of 2027. After this date, all voice calls in the UK will be carried over IP-based networks.

This means that every UK business currently using traditional phone lines — whether analogue PSTN lines, ISDN2 lines, or ISDN30 channels — will need to migrate to an IP-based voice solution. For businesses already using Microsoft 365, Teams Phone System is one of the most logical and cost-effective migration paths.

Key Features for UK Businesses

Teams Phone System offers a comprehensive set of telephony features that match or exceed what most traditional PBX systems provide. Understanding these features helps you assess whether Teams Phone System meets your specific requirements.

Auto-attendants provide automated call routing, greeting callers with a professional message and offering menu options to direct them to the appropriate department or person. You can configure multiple auto-attendants for different phone numbers, different times of day, and different days of the week — for example, a daytime menu with full routing options and an out-of-hours menu that directs callers to voicemail or an emergency contact.

Call queues manage incoming calls when all agents in a department are busy, placing callers in a queue with music on hold and estimated wait time announcements. Calls are distributed to available agents based on configurable routing methods — round robin, longest idle, or serial — ensuring fair distribution and efficient call handling.

Voicemail with transcription converts voice messages to text, delivered directly to the user's email inbox alongside the audio recording. This allows employees to quickly triage messages without listening to each one, and it makes voicemails searchable — a significant productivity improvement for busy professionals.

Call recording and compliance features support organisations that need to record calls for regulatory, training, or quality assurance purposes. Recording can be configured as automatic (all calls recorded by policy) or on-demand (users initiate recording during a call). Recorded calls are stored in compliance-ready formats with appropriate retention policies.

Licensing and Costs for UK Businesses

Understanding Teams Phone System licensing is essential for accurate budgeting. The licensing structure has several layers, and getting it right ensures you pay for what you need without overspending.

Every user who needs Teams Phone System functionality requires a Teams Phone licence, which can be obtained in several ways. Users with Microsoft 365 E5 or Office 365 E5 licences already have Teams Phone included — no additional licence is needed. Users with other Microsoft 365 plans (E3, E1, Business Basic, Business Standard, or Business Premium) need to add the Teams Phone Standard add-on licence, which is priced at approximately £6.60 per user per month.

On top of the Teams Phone licence, you need PSTN connectivity — the ability to make and receive calls to regular phone numbers. If you choose Microsoft Calling Plans, this is an additional monthly cost per user. If you choose Direct Routing or Operator Connect, the PSTN costs are determined by your SIP trunk provider or carrier, which may be more economical for businesses with high call volumes.

Deployment Planning and Network Readiness

A successful Teams Phone System deployment depends heavily on network readiness. Voice traffic is far more sensitive to network issues than email or file transfers — even small amounts of packet loss, jitter, or latency can cause noticeable call quality degradation. Before deploying Teams Phone System, your network must be assessed and, if necessary, upgraded to support real-time voice traffic.

Key network requirements include sufficient bandwidth for concurrent voice calls (approximately 100 Kbps per call), low latency to Microsoft's nearest data centre (ideally below 50 milliseconds round-trip), Quality of Service (QoS) configuration to prioritise voice traffic over less time-sensitive data, and a reliable internet connection with appropriate failover. For UK businesses, Microsoft operates data centres in the UK South (London) and UK West (Cardiff) regions, providing low-latency connectivity for Teams Phone System users across the country.

Many UK businesses find that their existing internet connection is adequate for Teams Phone System, particularly if they already use Teams for video meetings without issues. However, businesses with older broadband connections, limited bandwidth, or high numbers of concurrent users should conduct a thorough network assessment before deployment. Microsoft provides a free Network Assessment Tool that tests your connection's suitability for Teams voice traffic.

The transition to Teams Phone System represents a significant step forward for UK businesses looking to modernise their communications infrastructure. With the PSTN switch-off approaching and the working patterns of UK employees increasingly hybrid, cloud-based telephony through Microsoft Teams offers a compelling combination of flexibility, cost savings, and unified communications that traditional phone systems simply cannot match.