Ottawa should drastically deregulate its rules governing telecommunications companies, according to a federal review panel's report.

The panel, appointed by the then Liberal government a year ago, urged the federal government to take a more market-oriented approach to the telecom sector.

"It is time to reverse the current presumption in the [federal] Telecommunications Act that all services should be regulated ... [and] replaced with a legislative presumption that services will not be regulated except in specified circumstances," says the report released Wednesday.

"At this stage in the evolution of the telecommunications sector, Canada should reply primarily on market forces to achieve its ... policy objectives."

But the panel wants government to step in and fill gaps that the private sector leaves. It suggests tax breaks to encourage the use of the internet, government assistance to encourage internet use in rural areas and fewer restrictions on foreign ownership.

The Telecommunications Policy Review Panel was asked to suggest a new federal policy on telephone, cable television and internet providers. The current policy dates back to well before the internet revolution, when telephones were considered high tech.

The three-member panel included chair Gerri Sinclair, an internet technology consultant, Hank Intven, a llawyer and former CRTC executive, and former telecom executive Andre Tremblay.

Current regulatory policies are holding back Canada's economic productivity, the three-member panel said in its 400-page report.

"It is now time we started to make fundamental changes," Sinclair said in a statement.

In several innovative moves, the panel also suggested that Ottawa offer tax breaks to Canadian companies to help them switch over to the internet, thereby boosting economic productivity.

It wants the public sector to encourage the use of broadband in rural areas where it is uneconomic for the private sector to go.

And it suggested the hiring of a consumer ombudsman to act as an intermediary between the major telecom companies and the consumer, and the establishment of a new telecommunications competition tribunal to ease the transition to the new, deregulated environment.

Federal Industry Minister Maxime Bernier doesn't expect to make any imminent changes. He told the Canadian Press he'll need several months to consider the recommendations.

Bernier has, however, gone on record to say that he supports a move to a more market-oriented industry, possibly with more foreign ownership.