Ofcom announced today that it will allow BT to sell discounted services bundles for the first time, in a sign of the telco's ever-dwindling monopoly over the retail fixed-line telephone market.

The decision to deregulate the sector 25 years after BT's privatisation was taken because the watchdog believes that BT no longer has "significant market power".

Other suppliers, such as Virgin Media, BSkyB and TalkTalk, are now judged to provide sufficiently effective competition in this area of the market, according to Ofcom.

"This is an important step in deregulating telecoms, where competition can be relied upon to serve the consumer interest," said Ofcom chief executive Ed Richards.

The move will enable BT to bundle everything from landline services to broadband and digital TV, and will affect all parts of the UK apart from Hull, where Kingston Communications has provided rival services for years.

The move also follows similar action by Ofcom in 2006, when it removed restrictions on how much BT could charge its customers for calls.

The market started opening up in September 2005, when BT ceded to Ofcom's request to set up a new division, called Openreach, to supply services to rivals on equal terms.

Today, more than 12 million UK households and small businesses use a telecoms provider other than BT and have benefited from lower pricing.

Ofcom's latest Communications Market Report indicated that the cost of residential landline calls had dropped from £25.04 per month in 2003 to £21.57 last year.

Moreover, in 2008, about 46 per cent of UK consumers purchased a bundle that included two or more communication services compared with 29 per cent in 2005.