Speaking at the Digital Britain summit in London on Friday, UK trade secretary Lord Mandelson said that the government is considering ''pump priming'' financial intervention to ensure next-generation broadband is available to all UK households.
Mandelson said the government cannot be content with the telecoms industry's current plans, which will only make super-fast broadband services available to about half the country.
Although the UK has seen significant improvement in broadband services over the last decade, and is well in advance of many countries around the world, the network has fallen behind some of the world's leading developed countries since the onset of the credit crunch.
Mandelson's comments fuel hopes that the government will put aside a special fund in its next week's budget to finance the UK's digital revolution.
Much of the investment required was set to be provided by British Telecom (BT) which has promised billions of pounds for the creation of the UK's first fibre-optic nationwide network.
Earlier, prime minster Gordon Brown alluded to recent moves in other countries - such as the US - that involve injecting government money into the building of next-generation internet networks.
''I do think that the digital revolution lies at the heart of success for Britain in the years to come,'' Brown said. ''Achieving that goal of universal connectivity to broadband will be a critical stepping stone to a digital Britain.''
Brown compared the importance of the digital revolution with the industrial revolution and said that global communications would enable the UK to compete with countries like China and India in quality, if not on scale.
Current plans by BT and cable operator Virgin Media to roll out next-generation fibre-optic broadband networks, offering services at 40Mbps and 50Mbps, will leave some 12.5 million British households - about half the UK - out of the loop.
''The market unaided will provide some of the next-generation infrastructure the UK needs; but government cannot be indifferent to the wider national needs,'' Mandelson said, adding that what the government needed to do was "support, encourage, aid, abet, even pump prime".
However, he stressed that he has no intention of "replacing market forces or displacing the private sector" when it can do a better job.
The final Digital Britain report, to be published before the summer parliamentary recess in July, is expected to include a wide-ranging restructuring of local media ownership laws, paving the way for consolidation.
Lord Stephen Carter, communications minister and author of the Digital Britain report, talked about a 'digital arms race' that focused British minds on the idea of public investment in infrastructure.
He claimed that the UK was actually doing pretty well compared with other countries, especially as the government pushing for better broadband connectivity.
BT's Openreach programme
From early 2010, BT Openreach will deploy fibre to the cabinet (FTTC) technology at 29 exchanges across Britain.
It involves installing fibre between local exchanges and the cabinets located near homes and businesses. The connections from cabinets to their targets will still be over copper, but the speeds will still be much faster than those possible over ASDL.
The FTTC technology will be launched this summer in Muswell Hill, London and Whitchurch, Wales, connecting up to 30,000 customers ahead of the wider roll-out.
Areas of Belfast, Cardiff, Edinburgh, Glasgow, London and Greater Manchester will be able to access speeds of up to 40Mbps, with the potential for that to increase to 60Mbps.
The majority of locations will be in urban areas, but BT has picked Calder Valley near Halifax and Taffs Well near Cardiff to test deployment in more isolated environments.
It is all part of BT's grand plan to spend £1.5 billion on a national fibre optic broadband service, which will allow 40 per cent - around 10 million - of UK's homes and businesses to access fibre-based services.
''The wider industry will now be able to plan ahead as we will be making our services available on a wholesale basis,'' said Openreach chief executive Steve.