Telecoms regulator Ofcom has instructed BT to begin the formal separation process from its Openreach business, after the former failed to offer proposal addressing the watchdog's concerns over competition.
The watchdog, however, stopped short of ordering a full break-up and stated it still backed a separation process resulting in Openreach remaining a wholly-owned subsidiary of BT, but warned if the measure was to fail it could consider a full split.
Openreach should become a distinct company within the BT group, the regulator said.
The telecoms giant owns Openreach, which was established in 2006 and which owns the network of pipes and cables that the vast majority of businesses and homes in the UK use to access the national broadband and telephone network.
In July, Ofcom dismissed calls from BT's competitors to break Openreach off from its parent company, proposing instead the formation of an independent company within the FTSE 100-listed group.
However, on Tuesday (29 November), Ofcom said creating a more independent Openreach, working "in the interest of all providers, not just BT", was a pivotal point in its quest to strengthen and improve broadband and telephone services across the UK.
"We are disappointed that BT has not yet come forward with proposals that meet our competition concerns," the regulator said in statement. "Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users."
According to the watchdog's proposal, Openreach should develop its own strategy and annual operating plans and should appoint its own chief executive, while the company would also take control of its budget.
The group should also take control of its customer relations and would have its own board. Crucially, the majority of non-executive directors serving on the latter, including the chair, would not be affiliated to BT and they would be appointed and removed by a joint panel of BT and Ofcom.
Ofcom added it would notify the European Commission of its plans but remained "open to BT bridging the gap between its proposal and what is required to address our strong competition concerns".