The government wants to further liberalise the country's telecom industry, threatening Swisscom's hold on end-user connections.
Under the plan, the business of connecting Switzerland's homes and businesses to phone services would be opened up to competition.
The move poses a challenge to Swisscom, Switzerland's state-controlled phone company.
Communications minister, Moritz Leuenberger said he wanted to free competition for end-connections - the so-called "last mile" of phone cable that connects around four million households to their local network - in place by next year.
Swisscom described the decision as "deplorable", arguing that it does not hold a monopoly on local connections because Switzerland's cable television lines allow competitors an alternative link to phone customers.
The Government, which holds a 62.7 percent stake in Swisscom, says the changes continue the liberalisation of Switzerland's telecom industry, which since starting in 1998 have brought considerable benefits to consumers.
Although Switzerland is not a member of the European Union, the plan will bring it in line with European markets.
Swisscom competitors Tele 2 and sunrise welcomed the cabinet move.
swissinfo with agencies