@Emerson Emser Thank you for reaching out to us. As I understand users within your directory are unable to perform MFA via SMS, on further investigation you noticed the following error message in the audit logs "Phone number has bad reputation, blocking"
Have you noticed any pattern for example does users from specific region/country facing this issue?
Does the same users can perform MFA via phone call method ?
As far I know we do have PhoneReputation service is integrated with Azure MFA to provide a near-real time determination which tracks tracks the usage and reputation of phone numbers as they are used across various Microsoft services. Microsoft may limit repeated authentication attempts that are perform by the same user in a short period of time.
However this limitation does not apply to the Microsoft Authenticator or verification code. If your users have hit these limits, they can use the Authenticator App, verification code or try to sign in again in a few minutes.
As you mentioned in the query before as this was working, we can connect offline (shared my contact details above) discuss further on the same and work with our engineering team to resolve this for you.
Let me know if you have any further questions.