NEW YORK (FORTUNE) - The city of Cardiff may seem like an unlikely place for a technological revolution, but in a few months the capital of Wales will be home to a new kind of telecommunications network that could drastically change the way phone calls, Web pages, e-mail and other data are shipped to and fro.

BT (Research), (British Telecom) the incumbent phone company in the United Kingdom, is planning to shut off all of its legacy phone networks - a hodge podge of systems that includes the traditional "circuit switched" system that has served as the architecture for delivering phone calls for more than a century - by 2010.

More from Fortune Ex-AIG brass tries to shift blame The next Wall Street? 5 hot rocks FORTUNE 500 Current Issue Subscribe to Fortune

Microsoft teams up with the cool kids 'Willy Gates' and his software empire are trying to shed a stale image and lure coveted content partners. (Read the column) More Plugged In The World Cup and the global economic battle Cingular bucks anti-union trend Here comes the microdiet Merck's $4 billion PR problem Plugged In Archive

In its place, BT is installing a single network based on Internet Protocol, the language of the Internet. And the first town to make the conversion to the new network is Cardiff, a former coal port.

BT has been heavily promoting the $18 billion (10 billion pound) project, dubbed "21CN" (as in 21st Century Network) - but some of the hype is justified. Phone companies have been moaning for years about the complexity of their networks, and the need to move to one IP-based system. BT actually is doing something about it; in fact, some analysts and equipment makers have suggested the London-based company's timetable for cutting off its old networks may be too ambitious.

But what's really cool about what will happen in Cardiff - and eventually the rest of the U.K. - is that BT is creating an open, standards-based platform for which anyone can develop new applications. In other words, the phone has the potential to become more like the Internet with its proliferation of cool new Web sites, tools and services.

"This whole thing is based on openness and transparency," says Paul Reynolds, chief executive of BT's wholesale operations. "We want to allow experimentation by application developers."

This is no small thing. Right now, for example, most of the mildly interesting stuff consumers can do with their phones - call waiting, caller ID, call forwarding - is programmed right into the big computers that route calls around the network. That makes it virtually impossible for some entrepreneur in a garage or some teenager tinkering at his computer to develop a new phone service.

By moving to an Internet-based architecture, British Telecom enables that tinkering teen to spend time he might have dedicated to making Google "mashups" to creating a fun application for the phone network. "We are doing what Google is doing," says Reynolds, referring to Google's (Research) willingness to make some of its application programming interfaces (APIs) available to the public.

Phone companies haven't embraced this open model in the past, partly because of the way their systems grew up: Hardware and applications always went hand-in-hand. The big equipment providers liked to keep it that way - any time a phone company wanted to add a new service, they had to go back to their gear makers. The telcos like the status quo, too. When they deploy a homegrown application on their network, they reap all the revenue.

But the really scary scenario for phone companies is this: Say some cool company develops a whole suite of communications applications that can run on a standard IP-based networks, enabling a new global phone company to emerge simply by leasing capacity on, say, AT&T's network.

In some respects, this is already happening (think Skype) and more companies like this are coming. Indeed, Reynolds job as wholesale chief is to make it easy for upstart phone companies to rent parts of the BT network, which they can then tweak to create their own service offerings.

Asked to speculate on why other big phone companies have been reluctant to embrace open standards, Reynolds demurs, but suggests that openness makes BT's strategy less risky, not more. "You get more people's intellectual capital," he says.

Indeed, imagine if all the innovation that we've seen in the software and Internet sectors came crashing down on phone systems. Perhaps there's a call waiting/Google Maps mashup in our future.