Ofcom is reviewing local loop unbundling (LLU), which it says could be critical to a competitive telecoms market in the future.
At the same time BT is cutting the costs of both shared and fully unbundled local loop products.
Ofcom said its consultation proposes a "significant development" of the LLU market to allow operators to create new and competitive high-speed data services based in the UK's local broadband exchanges.
Over time, IP networks will replace older networks based on Asynchronous Transfer Mode. Ofcom said: "The efficiencies offered by IP networks mean that the local loop and local broadband exchange may provide much greater scope for infrastructure competition in the future.
"Ofcom therefore believes that a renewed focus on the local loop will be critical in ensuring a fully competitive telecoms market for the long term."
The regulator welcomed BT's commitment to the process and the telco's plan for a 70 per cent reduction in its charges to operators leasing unbundled shared local loops.
BT's cuts were also welcomed by internet service providers (ISPs). Wanadoo said the move would "trigger a real broadband revolution in the UK".
David Melville, the ISP's head of regulatory affairs, said LLU is vital if ISPs are to offer better bandwidth and more services and content.
"Our frustration is that we have been operating in a market that lacks innovation," he told vnunet.com.
But analysts and other ISPs have sounded a note of caution.
"It is a start, but the pricing is the easy bit and just one facet of LLU," said Richard Sweet, head of regulation at Thus.
"We would like to see the cost of LLU backhaul come down as well as making migrating customers from IPStream to LLU much easier."
Ian Fogg, broadband analyst with Jupiter, warned: "BT did need to drop prices but they can drop them further still. But it's not just about prices; the devil is in the detail.
"BT has to make procedures, such as making it easier to get equipment in exchanges and simpler for ISPs to migrate customers to LLU services."
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