My first pass:

CREATE TABLE #EmergencyPhoneNumber(PersonPhoneId int Primary Key,

PersonId uniqueidentifier,

PhoneId int,

IsPrimaryNumber bit,

PhoneExtension varchar(10),

Comments varchar(255))

INSERT INTO #EmergencyPhoneNumber VALUES(1,'4EE56555-91C6-4755-AC8E-0099D297445A',2771,0,'1111','this is phone1')

INSERT INTO #EmergencyPhoneNumber VALUES(2,'4EE56555-91C6-4755-AC8E-0099D297445A',2771,1,'','this is phone2')

INSERT INTO #EmergencyPhoneNumber VALUES(3,'4EE56555-91C6-4755-AC8E-0099D297445A',2772,0,1111,'this is phone3')

;

WITH numbertelns AS (

SELECT ROW_NUMBER() OVER (PARTITION BY PersonID, PhoneID ORDER BY PersonPhoneId) AS rownum,

PersonId,

PhoneId,

IsPrimaryNumber,

PhoneExtension,

Comments

FROM #EmergencyPhoneNumber

), grouptelns AS (

SELECT PersonId,

PhoneId,

MAX(PhoneExtension) AS PhoneExtension,

MAX(CAST (IsPrimaryNumber AS TINYINT)) AS IsPrimaryNumber

FROM #EmergencyPhoneNumber

GROUP BY PersonId,PhoneId

), keeprow AS (

SELECT p1.rownum,p1.PersonId,p1.PhoneId,CAST(p2.IsPrimaryNumber AS bit) AS IsPrimaryNumber,p2.PhoneExtension,p1.Comments

FROM numbertelns p1

JOIN grouptelns p2

ON p1.PersonId = p2.PersonId

AND p1.PhoneId = p2.PhoneId

WHERE p1.rownum = 1)

MERGE numbertelns n1

USING keeprow n2

ON n1.PersonId = n2.PersonId

AND n1.PhoneId = n2.PhoneId

AND n1.rownum = n2.rownum

WHEN MATCHED THEN

UPDATE SET n1.PhoneExtension = n2.PhoneExtension,

n1.IsPrimaryNumber = n2.IsPrimaryNumber

WHEN NOT MATCHED BY SOURCE THEN DELETE

;

SELECT * FROM #EmergencyPhoneNumber

DROP TABLE #EmergencyPhoneNumber

The extension logic may be undesired. You didn't say what to do if the duplicates both had extensions and they did not match. In that case I take the highest one.

A merge actually does make some sense here, as you need to both update and delete.