Price caps on BT's line rental and calls charges will be lifted after 22 years, industry watchdog Ofcom said yesterday.
Fierce competition amongst phone companies will ensure customers get a fair deal without the controls, according to the telecoms regulator.
BT welcomed the deregulation and pledged to limit price increases for people on low incomes.
More than 10.7 million households and businesses no longer use BT for their phone calls, Ofcom said.
Like other landline phone companies, the telecoms giant i s under pressure from increased mobile phone use which makes up 31 per cent of all voice call minutes in the UK.
BT, which estimates it has around 58 per cent of the UK's traditional lines and calls business, charges retail customers £11 a month for line rental, with aggressive competitors such as Carphone Warehouse and NTL Telewest offering it for about the same.
Competition across the telecoms sector is set to increase further as phone calls over the internet become more popular.
Ofcom chief executive Stephen Carter said: "This is a good example of a market now functioning well.
"This deregulation is accompanied by appropriate and specific protections for vulnerable groups."
Ofcom carried out a public consultation on the removal of price controls earlier this year. They were brought in by the telecoms regulator in 1984 when BT was privatised.
BT Retail chief executive Ian Livingston said the company would now look at ways of making its pricing structures more simple and user-friendly.
"Ofcom's decision is good news for customers. The UK has enjoyed one of the most competitive telecoms market in the world for a number of years and a freer BT will deliver even better value and innovation for our residential customers," he said.
Ofcom's current price controls on BT's residential call and line rental charges expire on July 31. The deregulation starts the following day.