Despite the collapse of many high profile dot.com businesses, the internet is flourishing in Britain, according to telecoms regulator Oftel, which yesterday said 40% of UK households were now using dial-up internet access.

An Oftel survey found that 10m British homes are wired up to the internet, up from 6m a year ago. Although many users still believe that they are paying over the odds for their service, the industry watchdog said British consumers were paying prices similar to those paid by households in France, Germany, Sweden and the US.

Oftel now intends to launch a wide-ranging consultation excercise with firms operating in the internet sector, looking at whether action should be taken to promote competition - especially in the provision of wholesale services which allow firms to connect dial-up services to BT's local network.

However, Elaine Axby of Oftel, who is one of the authors of the report, said yesterday that the watchdog has no plans to call for regulation of the internet access market for residential customers.

Ms Axby said that despite sector consolidation, such as France's Wanadoo buying Freeserve and Tiscali of Italy buying World Online, there were still about 400 internet service providers offering access to British users. "Despite all the consolidation, it still seems to us that there are a large number of possible operators out there."

However, Oftel did voice concerns about the level of service experienced by British users. The regulator has received complaints from customers about the amount of information provided by ISPs about their services. Last year many internet users in the UK found themselves kicked off services they had thought were unmetered because they were spending too much time on the net.

At the time, the Consumers Association called on the industry to be more open about its terms and conditions and accused some ISPs of publishing misleading information. Yesterday the consumer lobby group said it will study Oftel's report closely before deciding whether to make similar representations.

According to the 70-page document publishing the survey's findings, about 35% of British households use some form of unmetered access product such as those provided by AOL and BT's Openworld business.

But it also showed that British consumers are unwilling to stay with ISPs they think are providing a poor service. About 30% have changed their ISP at least once.

The boom in unmetered access has created a demand for wholesale products from BT, which ISPs use to provide access to residential and business users. Oftel intends to investigate whether it should demand a change in the way the wholesale market is run; its final report is due to be published by the end of the year.