BT will have to open up more of its network to rivals and meet tougher targets on fixing faults, British regulators said today.
But they stopped short of recommending that Britain's biggest telecoms group be split up.
Ofcom said BT should reduce its grip on the network that provides broadband to millions of homes, both through BT's own services and those of rivals.
Competitors including TalkTalk, Vodafone and Sky, which rely on BT's Openreach network to deliver broadband, wanted the regulator to recommend that Openreach should be spun off.
They said it did not have enough incentive to improve networks and service while it remained part of BT.
Ofcom stopped short of recommending a split but did not rule it out in future.
"Today we've announced fundamental reform of the telecoms market - more competition, a new structure for Openreach, tougher performance targets, and a range of measures to boost service quality," Ofcom's chief executive Sharon White said.
BT has strongly defended its record of investing in broadband through Openreach.
Earlier this week, BT's chief executive Gavin Patterson promised to deliver more, including extra investment in fibre lines into people's homes and businesses, but only if Openreach remained part of BT.
Ofcom recommended BT should open up its infrastructure so rivals can lay their own fibre lines, and the governance of the unit should be overhauled.
"The new model might require Openreach to become a ring-fenced, 'wholly-owned subsidiary' of BT Group, with its own purpose and board members," Ofcom said.
"If necessary, Ofcom reserves the right to require BT to spin off Openreach as an entirely separate legal entity, with its own shareholders," he added.