You'd be much better off using sshd instead of telnetd:
1. "telnet isn't secure and you should't really be using it"
<= You've probably heard this before...
... and it *isn't* untrue!
2. "ssh" comes with lots of options to restrict users, restrict IPs,
assign logins to alternate shells (e.g. Restricted Bash "rbash" instead of "bash") and confine them to "chroot" directories.
3. Besides, "ssh" is more secure and better supported in modern OS's.