Edit, issue fixed. Problem was user name env variable should be DISCOURSE_SMTP_USER_NAME instead of DISCOURSE_SMTP_USERNAME.
The below configuration work:
DISCOURSE_SMTP_USER_NAME: <Azure communication service SMTP user name (does not need to be <Azure Communication Services Resource name>.<Entra Application Id>.<Entra Application Tenant Id>>
DISCOURSE_SMTP_PASSWORD: xxx
DISCOURSE_SMTP_DOMAIN: yourdomain
DISCOURSE_NOTIFICATION_EMAIL: DoNotReply@yourdomain
DISCOURSE_SMTP_AUTHENTICATION: login
DISCOURSE_SMTP_ENABLE_START_TLS: true