Oftel says that the price control formula will save pounds 5 a year on a household bills of pounds 160. Businesses which use telephones a lot could see their annual bill fall sharply.
In two months of bitter haggling since the proposals were first announced, Bill Wigglesworth, the Director-General of Oftel, made it plain he would not compromise.
BT, which has a 93 per cent market share and made a profit of more than pounds 3bn last year, said the regulator had pushed as far as possible in terms of what BT could accept.
Under the new regime, BT has also agreed to reduce the connection charge from pounds 152.75 to pounds 99 and to keep increases in charges for line rentals to inflation plus two percentage points. The company, which claims that it loses vast amounts in local networks, had lobbied for the ability to rapidly increase these charges.
The watchdog has also told BT to extend its low-user scheme under which those who make few calls pay low rental. And, for the first time, the company will be obliged to offer to the profoundly deaf a service enabling them to carry on telephone conversations with speech converted at the exchange to text.
The main change imposed by Oftel limits the price increases on BT's 'basket' of basic services to inflation minus 7.5 percentage points, compared with inflation minus 6.25 points under the existing regime.
But although BT has flexibility within that cap to increase some charges more than others, none can now go up by more than inflation. The new system takes effect in August 1993 and lasts for four years.
BT attacked the regulator for interfering too much in the working of the market.
A spokesman said: 'We continue to believe that the proposals are harsh and represent a significant change in direction towards more interventionist regulation, which could impede the devlopment of the truly competitive and open marketplace that everyone is aiming for.'
He said that the company had seriously considered a reference to the Monopolies and Mergers Commission in preference to the more onerous controls, but it feared that would take too much management time.
BT has also agreed to separate its local and long-distance businesses in accounting terms to allow rival operators easier access to BT lines at a fair price.
Previously, BT has resisted this, but will now co-operate with the regulator to formulate a plan of action.
The Department of Trade and Industry has licensed four companies to offer public telephone services in competition with BT and Mercury. They will be able to build their own networks in the UK and to offer international services using leased lines. The companies include Millicom of the United States, Swiss-owned WorldCom, and Ionica and the National Network in the UK.