Ofcom has warned BT to commit to "substantive changes" or risk an inquiry under anti-price fixing laws, but has shied away from ordering a break up of the telecoms giant.

The telecoms watchdog admitted that 20 years of regulation had failed to neturalise fully the infrastructure monopoly BT had inherited on its privatisation. Rivals were "largely or wholly" reliant on wires connecting customers to main telecoms backbones.

"Without real equality of access… sustainable competition cannot flourish," Ofcom said.

However, rather than dividing the telecoms giant between its infrastructure and service delivery arms, as many rivals and observers have urged, the watchdog proposed stricter rules to ensure that rival operators, such as Cable & Wireless and COLT Telecom, are offered the same terms as BT's in-house businesses.

"[The revamp] would require BT to commit to substantive behavioural and organisational changes," Ofcom said, adding that such terms were a "necessary pre-condition if there is to be any confidence that BT will not discriminate unfairly against competitors."

Failure to improve embrace competition adequately would prompt an investigation under anti-cartel legislation and the prospect of a Competition Commission inquiry.

The report was, overall, welcomed by BT, in proposing broad rules to replace the complex web of regulation created in the last 20 years.

"A move away from the micro regulation which Ofcom agrees has been bad for consumers and the industry will benefit everyone," BT said.

Julian Hewett, the chief analyst at Ovum, said that Ofcom's proposals, in avoiding a break-up and highlighting the importance of encouraging investment, "were about the best BT could have hoped for".

At Thus, the telecoms operator, Richard Sweet, director of regulation, urged rapid take-up of Ofcom's ideas.

"Alternative telecommunication companies like THUS have been campaigning for a fair competitive landscape in the UK telecoms industry for years, and we are creeping ever nearer to this holy grail," he said.

"It is important that the regulator moves quickly and resolutely to ensure policy recommendations take effect."

BT shares stood 1p lower at 197.25p in afternoon trade.

Consultation on Ofcom's proposals will close on February 3.

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