One option under consideration is that rival companies be allowed to install their equipment in BT's exchanges, allowing them to offer services such as high-speed Internet access and home shopping to domestic customers.
The move by the telecoms watchdog signals a renewed determination by Oftel to crack down on BT. The watchdog yesterday ruled that BT should share its directory information with other companies in an attempt to open up the market for directory enquiry services. Oftel also cautioned BT for unfairly trying to poach Internet users from rival operators.
However, Oftel is considering more far reaching steps. Next month it will publish a consultation paper proposing that BT be required to unbundle its local loop business - the part of its network that runs from the local exchange to the customer's door - to other telecoms operators.
The proposal will boost the range of services rivals can offer. At the moment BT is required to carry its competitors' calls on its network in return for a fixed charge. However, choice is limited by the ageing technology still used by most of BT's network, which means telecoms companies wanting to offer high-speed data communications have to lay their own cables.
The paper is a response by David Edmonds, Oftel's new director-general, to worries that residential customers have little choice of telecoms operator. The cable companies have effectively stopped building out their networks. Meanwhile Ionica, the wireless operator which had hoped to take on BT, is close to bankruptcy.
Chris Godsmark, telecoms analyst at Henderson Crosthwaite, said: "The fact that options like this are being considered is a sign that BT has been successful in protecting its share of the local loop."
Oftel is also responding to hints that the European Commission may decide to open up local telecoms markets across the Continent.
An Oftel spokesman said: "We are coming out with a very open consultation just to see what people think."