Ofcom wants BT Wholesale to slash the price it charges rival ISPs in rural areas.
Under the proposals - which are still being discussed - the wholesale broadband price will fall between 10.75 per cent and 14.75 per cent, depending on the area.
Ofcom believes the three million homes and businesses covered by the price cuts will see cheaper, better broadband from ISPs using BT's network.
"As a result, Ofcom expects competition between retail ISPs, who will benefit from the lower wholesale prices, to lead to reductions in retail prices which will benefit consumers," the watchdog said in a statement.
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"If wholesale broadband costs are reduced, ISPs should be able to buy more capacity for their customers without increasing their costs," it added. "This could result in faster broadband for rural areas."
Ofcom says it will exempt ADSL2+ lines from the charge caps, in order to encourage BT to invest in the newer system.
However, BT warned the watchdog not to be too heavy handed with broadband regulation. "BT understands Ofcom's desire to move from voluntary to more formal wholesale broadband pricing controls in the most rural parts of the country given this defined market is getting smaller as deregulation expands elsewhere," a spokesperson said.
"It is key that the details strike the right balance between control and incentives to invest in rural areas. As the UK's main investor in rural broadband, we will engage fully in the consultation process which follows to make our case."
The proposals will be finalised and come into force by this summer.
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