Local loop unbundling (LLU), where firms provide lines directly to customers rather than renting them from BT, will be key to delivering "second-generation" broadband services, according to Ofcom.
The telecoms regulator said that the initial UK broadband rollout, although dominated by BT and the cable companies, can be considered a success, but that it is now time to take a longer view on the delivery of broadband services.
LLU "could play an important role" over the rest of the decade in creating competition that will lead to innovative broadband and telephony services, such as voice over broadband and video on demand.
Ofcom admitted that initial attempts at LLU had largely been unsuccessful because the costs had been too high for operators to offer broadband services at rates competitive with BT's.
However, the watchdog said that there have been examples of the future benefits of more widespread LLU.
Internet service provider Bulldog, which has used LLU to offer services in some cities, today unveiled a £30 per month 4Mbps (400Kbps upstream) ADSL service, providing more bandwidth per pound than its competition by some distance.
Michael Philpot, senior broadband analyst at Ovum, told vnunet.com: "Anything that increases competition and flexibility is a good thing and LLU is one way of doing this.
"There is little choice for residential customers except over price at the moment, so more competition will help operators and ISPs offer different services such as video over broadband because they won't be limited to the bandwidth BT offers them wholesale at the moment.
"But I think there will only be a small number of operators which will be able to afford the investment because you need the customer base to support this."
Ofcom, however, believes that costs will come down and pointed to BT's promise this May to reduce its charges by 70 per cent to other operators seeking access to LLU.
Former BT, NTL and Thus executive Peter Black has been appointed as Ofcom's Telecommunications Adjudicator, tasked with developing new LLU products.
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