Has the internet slowed down over the past year, or have our expectations changed? The line at home suffers from frequent congestion; the YouTube clip does not start up for what seems like an eternity, and other video often does little better. And no, this is not just a case of tempers fraying as the cost of living rises; there is a growing problem, that in turn is rekindling the debate about whether it will be necessary to string fibre-optic cables into the home.

Francesco Caio, the former chief executive of Cable & Wireless, is looking at long-term policy options on behalf of the Government and advising ministers. He is talking to Shriti [Baroness] Vadera, an ally of Gordon Brown, and has the ear of Stephen Carter, the former Ofcom boss, both of whom now head up strategy at No 10. Mr Caio is some way from coming up with answers, but what is interesting is the perception that something ought to be done - which means some kind of government intervention.

The problem is that digging up all those roads and laying down all that fibre-optic cable would be jaw-droppingly expensive. It might cost £10billion to connect most homes, and £5 billion to do the next best thing, take it to all the local exchanges. No one can be sure of the exact sums, but BT is reluctant to spend the money, because the business case is not compelling.

There is no obvious need at the moment. South Korea has lots of fibre optic, but does it lead to lots more productivity? Korea is in turmoil, to judge by the recent protests; whatever fibre optic does bring, political stability is not part of it. The UK, meanwhile, has plenty of internet banking and home shopping and is already one of the most developed markets for online advertising in the world, well ahead of the US.

Yet, bottlenecks are starting to emerge in the UK, particularly on the congested highways from the exchange to the trunk network. Britons have already developed a taste for illegal online music and our enthusiasm for BBC video has led to nearly a million programmes being watched a day via the iPlayer. In fact, some internet providers believe the iPlayer is clogging up the network. For the moment, the congestion problems can be solved by internet providers spending a few million, but it is not yet clear how the next decade will pan out.

Two futures seem to lie ahead. The one that tempts those who believe something-must-be-done goes like this. BBC traffic grows in popularity, but the public broadcaster insists that it can't charge for content that licence payers have already paid for.

Broadband companies struggle to raise prices and make the investment they need to lay down more capacity.

Everybody starts moaning about the behaviour of the other, creating a nice scenario for ministers to demand that some of the BBC licence fee be top-sliced to help to pay for a fibre-optic upgrade (the BBC could spare the £300 million a year used to help to pay for the digital switchover after all).

A public intervention, though, is not compelling, even if cash for broadband seems a better idea than cash for Channel 4 was. If Virgin Media really invests in broadband, and there are signs it may, it would put BT, and those who rely on its network, under pressure to react.

Meanwhile, the music companies are trying to create a different scenario in which they make their vast catalogues available to broadband customers for a top-up to their broadband charge. That would create cash for investment and give internet providers a differentiated service. Madonna-net may be more commercial than, say, Tiscali for instance.

The question, though, is whether the record industry can succeed if the BBC makes its entire archive of Radio 1 sessions available free; or indeed whether consumers really value music enough to pay for it when other content companies - broadcasters - give up their jewels for nothing. One possibility would be for the BBC, ITV and Channel 4, to allow internet companies to charge a subscription for access to programmes broadcast a few weeks ago (the plan is already to sell shows direct through their “Project Kangaroo” service website).

What, though, if that succeeded? A successful BBC subscription service would undermine the basis of the universal television tax that is the licence fee. And who would want that?

**There has been no clearer demonstration of the two-speed economy in advertising than that shown by full-year results from The Economist yesterday. While local papers are in crisis, the upmarket weekly boosted advertising revenues by 16 per cent last year, testimony to what can happen when Google is not nicking your advertisers.

Nobody can relax though. This week Glam Media rolled into town. The company runs the Glam.com women's website in the US, has 42 million monthly visitors, and revenues of, it claims, $100 million a year. Glam, though, takes only about 20 per cent of revenues from its own site: the rest is cash earned from managing display advertising on behalf of third-party sites. Glam may not succeed, but that business model will work some day, taking ads from traditional media too.

dan.sabbagh@thetimes.co.uk

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive