BT has been told to put its "house in order" or face a split by a leading group of MPs.
The telecoms firm has been accused of "significantly under investing" in its Openreach broadband, potentially to the tune of millions of pounds a year and of favouring "interests and priorities" of shareholders over customers.
An investigation by the culture and media select committee also took aim at the regulator Ofcom, concluding it has not pushed BT hard enough to improve its Openreach service and should be prepared to enforce a full separation if BT fails to "offer the reforms and investment assurances necessary to satisfy our concerns".
Ofcom earlier this year stopped short of calling for a split, but told BT to open up its infrastructure to competitors to better serve customers.
BT's Openreach infrastructure are used as the "pipes" for broadband services, including those of rivals. Sky and Talk Talk are among those which have complained that BT is holding them back.
BT said it's "disappointed" with the conclusions but agreed that the service needed to improve.
"We are disappointed to be criticised for having invested more than £1bn a year in infrastructure when the UK was emerging from recession and rival companies invested little. As the report acknowledges BT’s investment has made the UK a broadband leader among the major economies in Europe," the company said in a statement.
“We agree that service levels have to improve and yesterday we announced that we are making significant progress in this area. We are hitting all of Ofcom’s service targets and are determined to exceed them given customer expectations are rising all the time. Thousands of engineers have been recruited and we are fixing repairs and installing new lines quicker than before."
Read more: BT avoids Openreach spin-off – for now
It claims its investment in Openreach is 30 per cent higher than two years ago and will plough a further £6bn into the business over the next three years.
Talk Talk boss Dido Harding said the report concluded that Openreach is "not fit for purpose", talking to the BBC, and that it put the need for radical reform "beyond doubt".
"BT’s broken promises risk creating a two-tier digital Britain, with millions of homes and businesses denied fast, reliable broadband. Britain needs an independent Openreach, freed from the shackles of BT and able to invest in world-class technology for the whole country, not just parts of it," said Harding.
"After years of suffering, customers deserve nothing less."
Ofcom said it agrees with its conclusion that Openreach's performance is not good enough and will soon have an update on BT's progress.
“We've introduced minimum standards for Openreach's quality of service, getting tougher each year, and we now intend to extend these further," said an Ofcom spokesperson.
“We have also made clear that Openreach must become more independent from BT, making investment decisions in the interests of all its customers. We'll shortly announce detailed progress in this area as part of our on-going review of the digital communications market.”