Telecoms giant BT has avoided being broken up by industry regulator Ofcom - but now faces having its grip on the UK market loosened.

Ofcom says its plans, published today, aim to support "greater competition, innovation and investment certainty" in the sector.

Previous consultation, it says, showed BT domination and complex regulation in the market, which is changing towards next-generation, internet-based networks.

The regulator now says BT has to deliver "real equality of access" to competitors, so they can invest, leading to effective competition and reducing the need for regulation.

But it warns that if BT does not deliver, "Ofcom will consider an investigation under the Enterprise Act and potential subsequent referral to the Competition Commission".

The move aims to ensure BT offers rivals the same wholesale products, prices and processes it sells to its retail arm, and particularly mentions broadband products and wholesale line rental.

Consultation on the plans will close in February next year, and Ofcom Chief executive Stephen Carter said: "Twenty years after liberalisation, the market has made good progress.

"However, its foundations are unstable in parts, overly dependent on intrusive regulation and with limited sustainable competition.

"As the move to the next generation of telecoms brings more choice and lower prices, we need a regulatory approach that is focused and which encourages investment and innovation in the infrastructure and services of the future."

The threat of a break-up has hung over BT since April when the issue was included among five "fundamental questions" to be considered by Ofcom.

BT has strongly opposed any moves to split its network infrastructure from BT Retail, claiming it would put investment in new products such as broadband at risk.

Some rivals take a different view as they currently rely on BT's co-operation to deliver their services and are struggling to eat into its dominant share of the fixed-line market.

The regulator also unveiled consultation proposals to improve consumer information and simplify the process of switching phone supplier.

Research published today indicates only a minority of people are likely to change, less than in gas or electricity, and they generally feel they do not have "sufficient clarity" to make the best informed choices.

It is also consulting on the scope and funding of "universal service regulation", which includes the provision of public pay phones.