As expected, Oftel yesterday cleared the way for British Telecom to compete in Hull for the first time, although it warned BT that any competition had to be fair.
As compensation, however, Oftel recommended that Kingston be allowed to offer residential telephone lines outside its own area, and be freed to bid for a cable franchise.
Despite being available since 1991, the Hull cable franchise has never been taken up by any of the established operators.
Kingston, which is considering a stock market flotation to raise funds, would not have to lay an entirely new network. The company has announced plans to upgrade its existing network with ADSL - a technology that allows digital signals to be sent down existing copper wires.
It is far from clear whether BT will take the opportunity to go into Hull. "We are looking what commercial opportunities this might represent for us," a BT spokeswoman said yesterday. However, it is thought unlikely that the group will dig up the streets of Hull in order to build a local network.
BT has been barred from competing with Kingston, which dominates the residential telephone market in the Hull area, although other operators have been free to offer services since 1991.
In a widespread consultation with Kingston customers, Oftel found that many were concerned that BT would undermine Kingston with unfair competition.
In an attempt to keep customers happy, Kingston has introduced innovations such as charging just 5.5p for every local call, no matter how long it lasts. This is likely to deter BT, which would not be allowed to match Kingston's offer if it entered the market.
Kingston, which has 170,000 customers in Hull, has been expanding outside the area for some time. The company's fast-growing Torch subsidiary has a licence to offer business telecom services across the UK.
Meanwhile, Oftel yesterday unveiled plans to charge telecom operators for telephone numbers in an attempt encourage them to use them more efficiently.
Oftel said that operators were currently using just 40 per cent of the numbers allocated to them, which led to number shortages.
The watchdog said that the move would put off future telephone code changes.