Ofcom has said telecoms giant BT should be split from its Openreach subsidiary. Photograph: Lynne Cameron/PA

BT must formally separate from its Openreach network division after failing to address competition concerns, the telecoms watchdog has announced.

Ofcom said it will launch a formal notification to the European Commission over plans to force BT to spin off its Openreach arm, which develops and maintains the UK’s main telecoms network used by telephone and broadband providers such as Sky, TalkTalk, Vodafone and BT Consumer.

But the regulator said during this process it still remains “open” to further proposals from BT to meet its “strong competition concerns”.

It said: “We are disappointed that BT has not yet come forward with proposals that meet our competition concerns.

“Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.”

Ofcom said its proposals – which were first put forward in July – would not see BT forced to sell off Openreach, but instead legally break off the division into a separate company with its own board.

On Monday night, BT appointed the first independent chairman of its Openreach arm – hiring Mike McTighe, who was on the board of Ofcom between 2007 and 2015.

But Ofcom wants Openreach to have a board made up of a majority of directors who are independent of BT.

BT has faced mounting calls for a full split from Openreach after the division has been being criticised for poor customer service and a lack of investment.

Ofcom said: “A more independent Openreach would be well placed to invest in ‘full fibre’ broadband for everyone.

“Our proposal requires Openreach to become a distinct company with its own board.

“This would comprise a majority of non-executive directors, including the chair, who are not affiliated with BT. Openreach would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally.”