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Take the Dialvice 5-Minute Quiz to find your exact Teams-ready Cloud Phone System.

75% of buyers prefer a “rep-free” experience, Gartner.

• PSTN catch: E5 includes Teams Phone software, but you still pay extra for dial tone and minutes.
• The $21 gap: Upgrading E3 ($39/mo) to E5 ($60/mo) costs $21/mo—more than double a $10 phone add-on.
• Unused security waste: Buying E5 purely for voice burns $11/seat monthly if you don’t use its advanced security tools.
• Mixed licensing: Reserve E5 for executives, use E3 + Voice ($49/mo) for general staff, and $8 device licenses for common areas.
• Carrier savings: Pair Teams with Operator Connect ($4–$9/mo) instead of native Microsoft plans for better volume rates.

The short answer ⚡

Microsoft 365 E5 costs $60/user/month and includes Teams Phone PBX software, but it does not include call minutes or dial tone.

Upgrading from E3 ($39/mo) to E5 solely for voice is financially inefficient:

• E3 + Teams Phone Add-On: $49/user/month (Phone ready)
• Full M365 E5 Upgrade: $60/user/month
• The Waste: Upgrading to E5 purely for voice burns $11/user/month on advanced security software most small-to-midsize businesses don’t use.

Unless you need E5’s high-end security stack, keep E3 and add a standalone phone license or 3rd-party Teams voice integration instead.

Financial Services scenario: A firm’s calling suprise

Consider a 75-user regional wealth management firm operating on Microsoft 365 E3.

Looking to replace their legacy PBX, the IT Director consulted a reseller.

The reseller pitched upgrading every employee to M365 E5 as the cleanest path, claiming “Teams Phone is included for free.”

The firm signed the E5 upgrade agreement, increasing their base licensing cost by $1,575 every single month ($21 delta x 75 users).

Shortly after deployment, they realized the upgrade only covered the phone system software.

They still had to purchase Microsoft Calling Plans at $5 to $12 per user monthly to make outside calls.

Comparing M365 E3 vs. E5 Voice Stacks

To evaluate your real voice TCO, you must look at published Microsoft 365 commercial list prices and isolate the phone components from the rest of the software stack.

Here is how the numbers break down across base commercial suites and standalone voice add-ons:

Where the “free voice in E5” pitch breaks down

In our years advising clients on business communications, we’ve seen many buyers fall for the same licensing illusion.

They believe M365 E5 provides a fully operational phone bill for $60 a month. It doesn’t.

Teams Phone Standard is simply the cloud engine that replaces your local PBX hardware. It provides zero PSTN line connectivity.

If an employee dials an external 10-digit number, the call will fail unless you attach a separate calling pathway.

Evaluating the upgrade math purely for voice rarely makes sense:

• M365 E3 Base Plan: $39/month
• Teams Phone Add-On: +$10/month
• Total Phone-Ready E3 Cost: $49/month
• Full M365 E5 Upgrade: $60/month

If a user doesn’t strictly need E5’s high-end security tools, forcing that upgrade burns $11/user/mo. ($60 vs. $49).

That is $132/user/year wasted on software nobody uses.

💡 Derek’s Pro Tip: Don’t buy E5 for 100% of your workforce. Licensing is modular. Keep 80% of staff on M365 E3 with a $10 phone add-on, and reserve E5 strictly for legal, compliance, and executive roles.

Strategic licensing architectures: Mixed deployments

Instead of paying for a single high-tier license across your entire company, structure your licenses by job role and actual security needs.

Here is a cost-optimized mixed deployment framework for a growing business:

1. Executive & Compliance Tier (15% of seats — E5 | $60/mo): Assign to C-suite, legal, and risk teams who strictly require Purview eDiscovery, insider risk tracking, and compliance call recording alongside native Teams Phone.
2. Knowledge Worker Tier (70% of seats — E3 + Phone Add-On | $49/mo): Assign M365 E3 ($39) plus the standalone Teams Phone license ($10). Staff get full external calling features without paying for security tools they don’t use.
3. Utility & Shared Space Tier (15% of seats — Shared Devices | ~$8/mo): Use dedicated Teams Shared Devices licenses for lobby desks, breakrooms, and warehouse phones instead of wasting full user accounts.

Derek’s Pro Tip: Under 300 users? Skip E3 and E5. Business Premium ($22/mo) includes robust security (Intune, Defender) and accepts the $10 Teams Phone add-on, giving you full voice and security for just $32/mo per seat.

Optimizing PSTN connectivity (Microsoft vs. 3rd-party Provider)

Once your Teams Phone software license is set, you must choose who provides your actual phone numbers, dial tone, and call minutes.

This is where 3rd-party providers deliver massive operational savings compared to native Microsoft plans.

• Microsoft calling plans ($8 – $20/user/mo): Microsoft acts as your carrier. It is easy to enable, but it is expensive at scale, uses rigid minute limits, and offers poor localized support during outages.
• Operator Connect ($5 – $12/user/mo): You buy from a 3rd-party carrier inside the Teams Admin Center. Gives you pooled minute plans, stronger SLAs, and real technical support without technical complexity.
• Direct Routing & 3rd-party integration ($3 – $8/user/mo): Connects Teams directly to a specialized cloud phone system or SIP carrier. Delivers the lowest rates, supports legacy hardware, and offers advanced features like SMS, AI, whisper/barge and deep routing.

Avoid the E5 “Tax” for basic voice

Microsoft 365 E5 is an exceptional software suite. However, it should be evaluated for its security, identity, and compliance capabilities—not as a shortcut for “free” phone service.

By profiling your users into tiered roles and pairing E3 seats with 3rd-party cloud providers, you avoid overpaying on base licenses.

This also unlocks advanced PBX features native Teams Phone can’t handle alone—like business SMS, real-time AI call coaching, and complex queues.

Before committing to an expensive E5 upgrade, let Dialvice help find you more-advanced 3rd-party options: 👇

Frequently Asked Questions

Does Microsoft 365 E5 include free international calling?

No. M365 E5 includes PBX software (Teams Phone Standard), but no PSTN minute packages. Outbound international calling requires a Microsoft International Calling Plan, pay-as-you-go credits, or routing traffic through a third-party Operator Connect carrier.

Can I buy Teams Phone Standard if I am on an Office 365 plan instead of M365?

Yes. Teams Phone Standard ($10/mo) can be added to both Office 365 (E1/E3) and Microsoft 365 (E1/E3/Business Premium) base plans. Just ensure your tenant accounts for any unbundled regional SKU requirements.

What happens to phone service if I downgrade a user from E5 to E3?

Without adding a standalone Teams Phone Standard license at the same time, the user immediately loses their dial pad, call queues, and phone number. External callers reaching their direct line will receive a fast busy signal.

Is Audio Conferencing still an extra add-on fee for E3 users?

No. Microsoft includes Teams Audio Conferencing (toll dial-in capabilities for meetings) in standard business base suites, including M365 E3, Business Premium, and E5.

Can small and midsize businesses use Teams Phone without E3 or E5?

Yes. Businesses under 300 users can pair Business Premium ($22/mo) with the Teams Phone Standard add-on ($10/mo). This gives you a complete voice and security stack for $32/user/month—saving $28/mo per seat compared to full M365 E5.

Notice: For informational purposes only. Emergency systems must be installed by certified professionals to ensure local code compliance.