Error: “Failed to access public folders. An internal server error occurred”

Public folder mailbox backup fails with the following error:

Processing mailbox Mailbox1_########@.onmicrosoft.com failed with error: Failed to access public folders.. An internal server error occurred. The operation failed., Mailbox must be accessed as owner. Owner: ####; Accessing user: /o=ExchangeLabs/ou=Exchange Administrative Group (####)/cn=Recipients/cn=-Mailbox1

The solution is to disable impersonation for public folder mailbox backup and provide the Veeam service account with direct access to the mailbox.

Before you apply the solution, make sure that two prerequisites are met:

1. Veeam service account has an Exchange Online license and an active mailbox within the organization.
2. Veeam service account has the Owner role to access a Public Folders mailbox and all of its subfolders.

To disable impersonation, do the following:

1. Open the Veeam Backup for Microsoft 365 console and stop active backup jobs (if any).
2. Open the Services.msc console on a proxy server that is responsible for processing public folders.
   To find out which proxy server is used, in the Veeam Backup for Microsoft 365 console, right-click a backup job, select Edit and go to the Specify Backup Proxy and Repository step of the wizard.
3.  In the Services.msc console, stop the Veeam Backup Proxy for Microsoft Office 365 Service.
4. Create a backup copy of the C:\ProgramData\Veeam\Backup365\Proxy.xml file by copying it to another location.
5. Run Notepad as Administrator and click File > Open.
6. Navigate to the C:\ProgramData\Veeam\Backup365 folder and change the view from Text Documents (*.txt) to All Files (*.*) .
7. Open the original Proxy.xml file and add the <Source EwsImpersonatePublics="False" /> line below the <Archiver> line (As shown below). If the <Source/> line is already present and has some parameters added, add only the EwsImpersonatePublics="False" parameter there.