The government-commissioned review gave the corporation four months to redraft the BBC.co.uk remit and outline how it plans to increase the amount of content commissioned from external companies.
The report demands that independent firms should produce 25 per cent of online content - excluding news - by 2006, and that strategic objectives that guide BBC Online must be more clearly defined.
Mr Graf advised a 'precautionary approach' to investment in web services, prioritising services that will be of most value to the public. His recommendations include the appointment of two specialist governors; one with expertise in new media and one with experience of competition law.
The report found that although a negative impact on the UK internet market could not be proven, there were indications that BBC Online may have deterred investment in competing services run by commercial organisations.
The findings were welcomed by the Newspaper Society which represents regional news publishers in the UK. BBC Online has become a powerful competitor to the regional press, says the society - one of several industry bodies that has called for stricter regulation.
"Some progress has been made," said Santha Rasaiah, director of political, editorial and regulatory affairs at the Newspaper Society.
"The Graf report stipulates - and the BBC submission to the charter review accepts - that the BBC must avoid adverse market impact upon its commercial competitors, that its activities must in future be distinctive and actually justified by its public service remit."
The report recommends that the BBC should 'immediately' explore ways of working with the regional press, particularly to cover local listings. The BBC's own local events listings site will be one of five sites to close immediately, along with its surfing, fantasy football, gaming and soap opera portals.
The BBC should link to regional news sites, suggests the report, and clarify its policy on linking to external websites.
Tessa Jowell, secretary of state for culture, media and sport, commissioned the report as part of an overall review of the BBC leading up to the corporation's charter renewal in 2006. The independent review was led by former Trinity Mirror chief executive Philip Graf, who began the review in January 2003.
More news from dotJournalism:
Graf underlines accountability
BBC gets first dibs on Graf
BBC reveals digital vision
Government Department for Culture, Media and Sport: http://www.culture.gov.uk/global/press_notices/archive_2004/dcms085_2004.htm
International Herald Tribune: http://www.iht.com/articles/528085.htm
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