Sir Peter Bonfield, BT's chief executive, said he expected "several million" residential customers to sign up for the service over the next five years.
BT is currently preparing to offer a technology called ADSL, which allows ordinary copper telephone wire to carry data at speeds up to 40 times faster than the best available modem, to its residential customers.
The move follows the completion of a trial involving 2,000 customers in west London, which the company says has gone well. Industry observers expect the technology to be formally launched nationally later this year.
"We are very positive about BT's commitment to ADSL," said Claire Rothman, telecoms analyst at SG Securities. "They have been cautious about rolling it out until now because sometimes you can be too early with new technology."
The launch will be part of the investment programme announced yesterday, which will extend BT's networks in the UK and continental Europe, allowing the company to offer a range of new services at lower prices.
The network is based on Internet protocols, which divide voice and data traffic into small packages and fire them down fibre-optic cable at high speed.
The technology increases the amount of telecoms traffic BT can carry, while bringing down costs and allowing it to offer new services. This could stem the steady flow of large business customers to rival operators such as Colt and WorldCom.
"This is a major milestone in creating the foundation for electronic business on a pan-European scale," said Chris Earnshaw, BT's engineering and technology director.
The amount of data traffic in the UK is expected to grow by more than 150 per cent over the next five years, creating a market worth up to pounds 10bn. The use of Internet protocols will eventually make it impossible to distinguish between voice and data traffic.
BT has just finished building its pan-European network, which stretches across 36,000 kilometres and links London and most of the major business centres in Europe. The network will be formally opened in Amsterdam next month.
Over the next five years, BT will expand the network in the UK to increase its reach. By the time it is complete, three-quarters of BT's existing business customers will be no more than 500 metres from a direct connection to fibre-optic cable.
Other operators such as MCI WorldCom, Cable & Wireless and KPN Qwest, a joint venture between the Dutch and US telecom operators, are at various stages of building pan-European networks based on Internet protocols.