BT has been told to open up its telegraph poles and ducts to rival providers to encourage the rollout of fibre networks.
Ofcom has published its Strategic Review of Digital Communication, which outlines a strategy to promote the rollout of ultrafast broadband facilities on a large scale, based on cable and fibre lines.
One of its key recommendations is to support investment by rival providers to make the market more competitive and reduce the country's reliance on Openreach.
Ofcom hopes to achieve this goal by improving access to Openreach’s network of telegraph poles and its ducts - the underground tubes that carry telecoms cables. This will enable competitors to connect their own fibre optic cables directly to homes.
While the regulator stopped short of demanding that Openreach be separated from BT, it did point out that its governance lacks adequate independence, with the wider company retaining control over Openreach's decision-making and budget.
By contrast, it believes other telecoms companies are not consulted sufficiently on investment plans that affect them, while Openreach has a clear incentive to make decisions in BT's interests.
Ofcom has therefore called for Openreach to be governed "at arm's length from BT, with greater independence in taking its own decisions on budget, investment and strategy".
Furthermore, it stressed that while it is not advocating a complete split at the moment, it "remains an option".
The regulator will now set out new standards for Openreach and wider quality of service, as well as put forward details on how access to Openreach’s network can be provided.
BT Chief Executive Gavin Patterson has welcomed Ofcom's decision not to push for a BT/Openreach separation.
"The focus now needs to be on a strengthened but proportionate form of the current model and we have put forward a positive proposal that we believe can form the basis for further discussions with both Ofcom and the wider industry," he commented.
Mr Patterson said this includes a new governance structure for Openreach and a clear commitment on investment.
He also confirmed that BT has volunteered to accept tighter regulation for Openreach and is happy to let other companies use its ducts and poles if they are "genuinely keen to invest very large sums as we have done".
"Our ducts and poles have been open to competitors since 2009 but there has been little very interest to date. We will see if that now changes," he said.
Sky, which had called for BT and Openreach to be separated, responded by welcoming Ofcom's "recognition that the current Openreach model is not working and that fundamental change is required".
However, a spokesperson said this is "not the end of the debate" and stated that BT must now be held accountable for improving service and enabling delivery of fibre to homes and businesses across Britain.
Richard Neudegg, Head of Regulation at uSwitch.com, added that while an Ofcom review into Openreach's future is "much-needed", it must not lose sight of key issues such as the "genuine threats to consumer engagement and competition which must be tackled".