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More than £1 billion of taxpayers’ money could be deployed to help to connect 12.5 million homes in small towns and rural areas to superfast broadband, amid fears that phone companies are unable to afford to do so. Speaking at Digital Britain, a government-hosted conference, Lord Mandelson, the Business Secretary, hinted yesterday that ministers were considering substantial cash investment in 50 megabit broadband to avoid a situation where only half the country is easily able to download film and television programmes. “The market unaided will provide some of the next generation infrastructure the UK needs; Government cannot be indifferent to wider national needs for a globally competitive economy,” Lord Mandelson said, adding: “Can we rest comfortably with the thought that only half of Britain’s homes and perhaps fewer small businesses will have access to next generation broadband over the next few years? I don’t think we can be content with that.” Asked if he was prepared to sanction spending public money to upgrade the rest of the UK, Lord Mandelson said: “Of course it is possible. I am a public investor where it is appropriate and right, and where there is not an alternative” although he added he was “not somebody who believes in replacing market forces or displacing the private sector”. Ministers are studying the decision made last week by Kevin Rudd, the Australian Prime Minister, to create a publicly controlled company that would spend up to A$10 billion (£4.9 billion) on a broadband network operating at speeds of 100 megabits or more. After two decades of post-Thatcher-ite consensus in which it was impossible to propose public spending to support industrial policy, there is a belief in Whitehall that a “new deal for broadband” may now be politically acceptable. Taxpayer-funded spending on high-speed internet could be sold as part of a wider job creation scheme. Ministers will reveal their intentions in June when the Digital Britain review of communications policy, led by Lord Carter of Barnes, concludes. So far they have formally committed only to ensuring that everybody in the country has access to broadband – a promise repeated by Gordon Brown at the conference earlier in the day. Broadband is not available to about 250,000 rural homes. Virgin Media will, by the end of this year, upgrade its network so that 12.5 million homes will be able to access superfast broadband with speeds of 50 megabits. BT is following suit, with a £1.5 billion investment programme to ensure 10 million British homes have access to a 40-megabit service in the next three years. There are about 25 million homes across the UK. However, both efforts will leave large parts of the country not covered by superfast broadband. Neil Berkett, chief executive of Virgin Media, said: “Digital Britain is not just about digital cities.” He added that while his companies and competitors could take care of “the three-year picture” it was not clear what would happen after that. Ministers are considering whether the rural and small town upgrade can be done with the participation of BT. Ian Livingston, BT’s chief executive, sounded a note of caution yesterday asking whether enough consumers were willing to pay for faster services. Francesco Caio, the former Cable & Wireless chief executive, who last year advised the Prime Minister on the future of broadband, said that broadband speeds in the UK were competitive compared wi