From next April, it will cost 22p a minute to call a mobile phone from a British Telecom line during peak hours, compared to about 30p a minute at present. Further reductions will bring that down to 19.5p a minute by 2001.
Charges for unanswered calls on Vodafone and Cellnet's networks - where customers are told that either the person they are calling has switched off their phone or is out of the network's range - will also be scrapped.
Oftel, the telecoms watchdog, estimates that if other operators make similar cuts the total saving on phone bills will add up to pounds 1bn over the next three years.
The cuts have been ordered after a nine-month investigation by the Monopolies and Mergers Commission concluded that British Telecom, Vodafone and Cellnet were acting against the public interest by overcharging for the calls.
The investigation was launched in March after Don Cruickshank, Oftel's former director-general, said the charges were a "rip off".
He argued that although competition between mobile phone operators for customers is intense, users pay more attention to the cost of outgoing rather than incoming calls when they decide which network to use. This allowed mobile phone operators to keep their prices high. Mr Cruickshank also argued that British Telecom was charging too much on the calls it delivers to mobile phone networks.
David Edmonds, who took over from Mr Cruickshank as director-general, said: "Throughout the investigation we have argued that these charges were much too high. The results of this inquiry totally vindicate the work that Oftel did."
Orange and One2One, the two newer mobile phone operators, were not under investigation and have not directly been ordered to cut their prices. But Mr Edmonds said he would be watching both companies carefully.
The cuts were welcomed by consumer groups as a sign that the regulator was committed to reducing the costs of mobile phone calls.
Oftel has ordered a one-off cut in charges next April, to be followed by a price cap which requires telephone companies to reduce prices for the following two years. The price cap will then be reviewed.
The reductions will slash pounds 100m off British Telecom's profits next year. However, the telecom giant pointed out that prices had been falling anyway.
Ian Morfett, BT's managing director of products and solutions, said: "The likely reductions continue the downward trend in prices for calling from a BT line to a mobile phone, with prices already 20 per cent lower than two years ago."
BT is hoping to make up some of the shortfall by encouraging people to take advantage of cheaper prices and call mobile phones more often. The company is planning an advertising campaign next year to tell its customers about the cheaper prices.Reuse content