The ruling, which was warmly welcomed by rival telephone operators, means from the new year that Oftel, Mr Cruickshank's watchdog body, will be able to intervene to ban any action by BT which he believes could thwart competition. BT had claimed Mr Cruickshank was acting unlawfully by elevating himself judge and jury over the company's affairs with no right of appeal.
The ruling, which has widespread implications for UK competition law, will now be extended by Oftel to other telecommunications operators and will also be applied to BSkyB as it rolls out its digital satellite television service.
Simon Holmes, a leading competition lawyer with City firm SJ Berwin explained: "It is another step towards a more competition-orientated regime and another step away from a system which is purely focused on specific regulation. It's a trend which we are anticipating for other regulated industries as competition takes hold."
Pointing to the transformation in the telecommunications industry since Oftel was created at the time of BT's privatisation in 1984, Lord Justice Phillips and Mr Justice Hooper agreed the system of regulation should also be allowed to evolve. However, they admitted that the new licence condition, which mirrors European law, was a "novelty".
Ironically, BT also lost on what the judges said was its strongest argument, that Oftel had unlawfully removed the right of appeal to the Monopolies and Mergers Commission, because the company had already consented to the new powers. The court challenge was to test their legal validity.