Ofcom said it was looking into whether spinning out the Openreach copper and fibre broadband network from BT may be the best way to improve competition in the sector.
It follows complaints that the network’s performance on behalf of other providers has often been poor, leading to new rules on faster line installations and repairs.
However, BT said customers of all telecoms providers had enjoyed higher speeds and lower prices due to its investment in a new ultra-fast fibre network. It argued that would not have been possible if the company had been split in two a decade ago following a similar industry investigation.
“Ofcom have overseen a regime that has balanced investment with competition and we hope they will once again put the needs of the UK and its consumers ahead of those who have tried to keep the UK in the digital dark ages,” BT said.
Other possibilities under consideration by the regulator include retaining the current model, applying new rules forcing BT to strengthen it, or deregulating and allowing different networks to provide phone and broadband services without using BT’s network at all.
Virgin Media and some smaller operators currently own their own networks, but Ofcom said this model of “end-to-end” competition could lead to duplication of networks and weak competition.
An Ofcom spokesman said: “Ofcom believes UK consumers are likely to get better services at lower prices if there is a sufficient number of effective competitors.
“Ofcom therefore starts from a pro-competition position and believes that end-to-end competition should be maintained where it is effective and sustainable.
“The review is considering the implications for the UK of international trends towards consolidation.
“It will also examine converging media services – offered over different platforms, or as a ‘bundle’ by the same operator.”
Analysts played down the prospect of a full separation any time soon, and shares in BT closed up fractionally at just over 472p.
Ovum analyst Matthew Howett said: “While Ofcom recognises there are challenges with Openreach, in particular in relation to service quality, it heavily suggests that further separation will not address these, and could ultimately be disproportionate.”
The watchdog said its review will lead to a statement at the turn of the year on the priorities and action which will shape its approach for the next decade.
Stuart Mackinnon, a spokesman for the Federation of Small Businesses (FSB) in Scotland, said: “Ofcom is right to look at how the digital market operates and how it could be improved for small businesses. The FSB in Scotland is particularly concerned about mobile coverage north of the Border.”
Mai Fyfield, Sky’s chief strategy officer, said: “It is welcome news that Ofcom is putting the future of Openreach at the centre of its review.
“For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need. We believe Ofcom should now move quickly to ask the Competition & Markets Authority to undertake a full competition inquiry.”