BT has received the green light to begin its rollout of super-fast broadband.
Ofcom has delivered its long-awaited ruling which offers BT more flexibility in the way it delivers fibre networks.
BT made clear it only wanted to make the move if regulator Ofcom allowed a fair return on that investment.
The regulator said that its ruling was a "pivotal" one for the development of broadband which it said would "be crucial" to the economy.
Three phases
"Our message today is clear: there are no regulatory barriers in the way of investment in super-fast broadband," said Ofcom chief executive Ed Richards.
"We want to promote investment to support the widespread adoption of superfast broadband but we want to balance that with the need for competition," said Mr Richards.
He said that the plans outlined in this "first phase" would provide the current conditions for investment in fibre.
Phase Two would look at how to reach the areas not covered by this market-led approach, and phase three would consider the evolution to even faster technologies.
See what applications work at different speeds
Moves have already begun to upgrade the UK's existing broadband networks to fibre.
Virgin Media has committed to upgrading its cable network to 50Mbps (megabits per second) - which will cover around half the population of the UK - by the middle of this year.
BT has pledged to complete the installation of fibre-optic cables to some of its street-side cabinets, offering speeds of between 40 and 60Mbps, by 2012.
This will offer higher speeds to around 40% of the country.
However, the regulator has "a central role to play in enabling both investment and competition", it said.
That includes allowing BT to set its own prices on how to sell access to its network to secure a fair return on their investment.
It may lead to consumers paying a premium for super-fast broadband.
Ofcom also said it would also "minimise unnecessary inefficiencies" in the design and build of new networks, which will mean, for example, that BT will be able to reduce the amount of engineers needed to manage an upgrade to fibre.
To date it has had to send separate engineers from its wholesale and Openreach divisions to manage the electronics and ducting respectively in its exchanges. Now it will be allowed to use one.
Mr Richards said that the wholesale pricing would be considerably more flexible than current wholesale products and that its hands-off approach reflected that it was dealing with a new BT.
"This is not the BT of old milking a copper network put in years ago. This is a risky investment for it," he said.
BT chief executive Ian Livingston welcomed the move, saying it "set expectations for the whole UK industry as the market evolves into a fibre-based world".
"Today's announcement gives us the green light to push ahead with our £1.5bn superfast broadband investment plans to reach at least 40 percent of UK households by 2012," Mr Livingston said in a statement.
It has been estimated that to offer fibre to the whole country would cost £5bn. If the technology used is fibre to the home that cost rises to £29bn.
Wholesale focus
What will deliver next-generation broadband?
Read Rory's blog on Ofcom's report
The focus of Ofcom's announcement is on making for a flexible wholesale model rather than opting, as some had predicted, for an environment where other operators laid their own fibre alongside BT's.
There was, said Mr Richards, "a lack of appetite" among the companies it consulted with for a fibre version of local loop unbundling.
This is largely due to the economic climate, he said.
Local loop unbundling, in which operators are able to install their own equipment in BT's telephone exchanges, is largely credited with kickstarting the current broadband market and for making it as competitive as it is.
'Limited options'
The fibre landscape will be different, thinks Ian Fogg, an analyst with research firm Forrester.
"What we have seen is a game, unlike football, of three halves. Dial-up was the first half, broadband was the second and this is the third. Ironically, in terms of competition, it will have more in common with what was happening in 2000 than what we see now," he said.
He is concerned that the type of superfast broadband on offer from BT - fibre to the street cabinet rather than fibre to the home - is being overhyped.
"It has a theoretical maximum of around 50Mbps (megabits per second) but speed will vary based on how far people live from a street cabinet and how many ADSL lines are in a street as the two can interfere with each other," said Mr Fogg.
"Even in urban areas there will be areas where speeds are no better than ADSL speeds," he added.
BT has pledged to offer Fibre to the Home technology on new-build sites. So far one estate, at Ebbsfleet in Kent, has a handful of houses using the technology.
Andrew Ferguson, editor of ThinkBroadband.com, thinks Ofcom's report was necessary: "The options for Ofcom were limited since if it refused BT, then the only next generation like network approaching national coverage would be Virgin Media who currently offer no form of wholesale access."
Mr Richards did not rule out the possibility of regulating Virgin Media if it became the dominant super-fast broadband player.
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