Telecoms watchdog Oftel has enraged BT's rivals including Freeserve by ruling that BT can charge customers for its telephone and high speed internet services using a combined bill.

Oftel has clarified the rules regarding the cross-promotion of internet and phone services in response to the outcry that greeted BT's announcement of the launch of its new "no-frills" high speed internet product later this year.

The access-only BT Broadband service will cost £27 per month and Oftel has agreed to allow the telecoms giant to charge for the service alongside existing phone services.

Oftel has also reiterated the fact that BT is not allowed to use its information on existing customers to specifically target them for broadband packages.

But BT's rival Freeserve was quick to condemn the Oftel ruling, insisting it will allow BT to cross-promote its web services to 19 million residential phone customers

"BT must not use billing information from its telephony customers to target its marketing of internet services to residential consumers," said David Edmonds, the director general of Oftel.

But BT will be allowed to market internet services by including details with everyone's bill, he added, and can also conduct market research to make its marketing more effective.

Freeserve, currently the largest internet service provider in the UK, is furious BT will be allowed to charge its customers for both internet and telephone services using a single bill.

"Oftel has used this piece of old news to bury in its press release the fact it has gifted to BT the anti-competitive advantage of using its blue bill to charge for its own broadband service.

"This fait accompli has been achieved without any industry consultation and with no apparent safeguards in place," said Freeserve in a statement.

The blue bill, which supports BT's near-monopoly fixed line phone business, is a privilege of BT and BT alone.

"This is a clear example of BT being allowed by the regulator to leverage a dominant market position in fixed line telephony to establish a position in broadband," Freeserve added.

Oftel is forced to tread a fine line between helping BT achieve the government's aim of improving broadband penetration and making sure it doesn't use its dominant position in the telephony market to undercut its rivals.

The chairman of BT, Sir Christopher Bland, said at the weekend he had no plans to demerge BT's wholesale and retail arms - a move that many of its competitors have called for, claiming it would stop BT from being able to cross-promote or cross-subsidise its activities.