Business Technology
Microsoft Teams Phone vs Hosted VoIP: Which Is Better for an SME?
Both replace traditional phone lines with calls over the internet, but they suit different businesses. Here's a neutral comparison of Microsoft Teams Phone and standalone hosted VoIP for UK SMEs.
FNS Team · 5 min read · Updated September 2026
Neither is objectively "better" — Microsoft Teams Phone suits businesses already committed to Microsoft 365 who want telephony built into a tool they already use daily; standalone hosted VoIP suits businesses that want a dedicated telephony platform with call-centre style features and don't want their phone system tied to Microsoft's ecosystem.
With the UK's PSTN (traditional analogue and ISDN telephone lines) being progressively withdrawn — a process Openreach and the wider industry have been running for several years, with timelines that have shifted more than once — most businesses will need to move to a form of internet-based calling regardless. That's prompted a genuine choice for a lot of SMEs: build telephony into Microsoft Teams, or go with a dedicated hosted VoIP provider. Both work well; they suit different situations. For the latest on switch-off timelines, Ofcom's own updates at ofcom.org.uk are the most reliable source, as dates have moved before.
What each option actually is
Microsoft Teams Phone turns Teams — the app most Microsoft 365 users already have open all day — into a proper business phone system, capable of making and receiving calls to and from ordinary landline and mobile numbers, not just Teams-to-Teams calls. To connect Teams Phone to the outside phone network, businesses typically use one of:
- Operator Connect — a Microsoft-managed marketplace of certified telephony carriers who connect directly into Teams, generally the simplest option to set up.
- Direct Routing — connecting Teams to a third-party SIP trunk provider yourself (or via your IT provider), offering more flexibility and choice of carrier, at the cost of more configuration.
- Microsoft Calling Plans — calling packages sold directly by Microsoft in some markets, bundling the phone line with the Teams Phone licence itself.
Hosted VoIP is a standalone cloud telephone system, independent of Microsoft 365, typically accessed through desk handsets, a softphone app, or a web portal. It usually comes from a dedicated telephony provider and is built specifically around business calling features — call queues, hunt groups, auto-attendants, reporting — as its core product rather than an add-on to a collaboration platform.
Feature comparison
| Microsoft Teams Phone | Hosted VoIP | |
|---|---|---|
| Where you make/receive calls | Inside the Teams app, on any device | Desk phone, softphone app, or web portal |
| Best fit | Businesses already using Microsoft 365 daily | Businesses wanting a dedicated phone platform |
| Call queues, auto-attendants | Available, but generally simpler than dedicated platforms | Usually more mature and configurable |
| Integration with email/chat/video | Native — same app | Limited, unless separately integrated |
| Licensing | Added to existing Microsoft 365 licensing (Teams Phone add-on, or included in some E5-type plans) | Priced per line/user by the VoIP provider, independent of Microsoft |
| Hardware | Works with certified Teams desk phones, or no hardware at all | Wide choice of traditional and IP handsets |
| Vendor flexibility | Tied to Microsoft's ecosystem and calling options | More choice of carrier and platform |
| Reporting/call analytics | Improving, but generally lighter than dedicated platforms | Often more detailed, geared to call-centre use |
Exact feature sets and licensing structures for Teams Phone change fairly regularly as Microsoft develops the product, so it's worth checking current details on learn.microsoft.com rather than treating any one comparison as fixed for the long term.
When Teams Phone makes sense
- Your business already runs on Microsoft 365 (Teams, Outlook, SharePoint) for most of the working day.
- You'd genuinely value having chat, video, files and calling in a single app rather than switching between systems.
- Your calling needs are relatively straightforward — direct-dial numbers, voicemail, basic call routing — rather than a complex contact-centre setup.
- You want to reduce the number of separate vendors and logins staff have to deal with.
When hosted VoIP makes sense
- You run a business with heavier call-handling needs — a busy reception desk, a support team working queues, or detailed call reporting requirements.
- You're not (or don't want to be) tied into Microsoft 365 for your core productivity tools.
- You want more flexibility in choosing carriers, numbers, and hardware, or you have existing VoIP handsets you want to keep using.
- Your team relies on physical desk phones as much as, or more than, softphone apps.
A worked example
A 25-person professional services firm, already fully on Microsoft 365 Business Premium with staff living in Teams for chat and meetings, decides to add Teams Phone via Operator Connect. Reception now answers calls directly in Teams, calls can be transferred by dragging and dropping within the same app staff already use, and there's one fewer supplier relationship to manage. By contrast, a 40-person contact centre for an insurance broker, with complex call queues, skills-based routing and detailed reporting needs, is generally better served by a dedicated hosted VoIP platform built specifically for that kind of call volume and reporting depth.
Cost considerations
Broadly, Teams Phone adds a per-user licence cost on top of existing Microsoft 365 subscriptions, plus a calling plan or carrier connection. Hosted VoIP is typically priced per line or per user directly by the telephony provider, independent of your Microsoft licensing. Because pricing models and typical UK market rates shift over time and depend heavily on call volumes and contract terms, we'd avoid quoting fixed figures here — a proper comparison needs your actual usage and current market pricing side by side.
Common mistakes
- Choosing Teams Phone purely because "we already have Microsoft 365," without checking whether the calling features genuinely match how the business handles calls.
- Choosing hosted VoIP and ending up running two separate "communications" systems (Teams for chat/video, VoIP for calls) when a single platform would have suited the business better.
- Not checking current PSTN switch-off timelines for your specific exchange or provider before assuming there's no urgency.
- Underestimating training needs — even a well-chosen system needs staff to actually learn the new way of answering and transferring calls.
Recommendations
In our experience, the right starting point is to map out how your business actually uses the phone today — call volumes, queues, reception handling, remote working patterns — before picking a platform based on what's fashionable or what you already have some of. Either option can be a good long-term choice; the deciding factor is almost always how well it matches your day-to-day calling patterns, not the technology itself.
Related questions
- Microsoft 365 Business Standard vs Business Premium
- Does Microsoft 365 back up your data?
- How much should managed IT support cost in the UK?
If you're weighing up Teams Phone against hosted VoIP ahead of the PSTN switch-off, our VoIP & Connectivity team can talk through both options against your actual call patterns — get in touch to arrange a conversation.
