Welcome to Olympic Way, said Tony Newstead, pointing down a shadowy, subterranean corridor.

With ankle-deep water and sludge, London’s sewer network is every bit as foul as visitors might expect. Only the smell is less severe because most waste flows away at 20mph to the sewage works at Beckton, east London, passing under the 2012 Olympic games site at Stratford on the way.

Newstead, in white overalls, blue helmet, two pairs of gloves and rubber waders that pull up to his waist, has been a flusher for 30 years. For the past six he has not been alone as he maintains the network of underground channels, built in 1865 from neat red brick to save the capital from the Great Stink.

He has been joined below ground by teams of telecoms engineers and now, just above his head, four thin cables snake along the arched ceiling and disappear into the darkness. London sewers, a triumph of Victorian engineering, have been replumbed - or rather rewired - for the internet age. “I don’t know why they didn’t do it years ago,” said Newstead. “At least it means they won’t be digging up the roads.”

What flushers don’t realise is that they could be working alongside part of the answer to a £29 billion question.

Despite the onset of recession, the government is trying to arm-twist telecoms companies into spending billions on new infrastructure that will speed up the internet so British homes and businesses can keep pace with other countries. In the current economic environment, as market leader BT issues a huge profits warning, this is easier said than done.

“I will make no bones about it, this is going to be a difficult and challenging time for people to make big investments of that kind,” said Ed Richards, chief executive of Ofcom, the telecoms regulator. “We are acutely aware of that, but also need to take a long-term view.”

Offering an average speed of 5.9 megabits (Mb) a second, the internet isn’t exactly slow. However, speeds slow down at some times of the day, such as at teatime when millions of children come home from school and jump on to band-width-hungry services such as YouTube or BBC iPlayer.

For media companies, the improvements can’t come soon enough. Just don’t ask them to pay for it. Dana Dunne, the chief executive of AOL Europe, whose Truveo service indexes 250m videos online, is worried that Britain is already falling behind Japan and France.

“Investment could take several years to reach the consumer,” he said. “In the meantime, UK users will find they are not able to enjoy the highest quantity and quality of online video.”

By increasing capacity and replacing century-old copper wires with fibre-optic cables, speeds could be boosted to 100Mb – enough to download full-length films in seconds. The only problem is the cost.

Unlike the bailout of the banks, public subsidy will be harder to come by. In a government report, former Cable & Wireless chief executive Franc-esco Caio argues there is little case for spending government money, even though rural areas, which are less appealing to investors, could fall behind cities in terms of the speed of internet access.

The Broadband Stakeholder Group, which advises the government, estimates it will cost £28.8 billion to run fibre-optic cable into every home in the country. Laying the same cable from homes to the phone cabinet in the street, increasing speeds to 40Mb at first, comes in at £5.1 billion.

For the telecoms industry, littered with a history of foolhardy investments, it amounts to another quandary over whether to gamble on the promise of future returns. No wonder Ofcom is trying to entice BT with the carrot of no longer restricting the price it charges other operators for wholesale access to its network.

BT has answered the call. It is committing £1.5 billion to hook up 10m homes – 40% of the population – with fibre-optic cable by 2012. A pilot project in Ebbsfleet, Kent, has begun hooking up 10,000 new houses.

Virgin Media aims to steal a march on its rival by rolling out 50Mb to all its customers by the middle of next year, with the prospect of 200Mb by 2012.

“We are 100% comfortable that fibre optic to the cabinet offering up to 40Mb will serve for a number of years to come,” said Liv Garfield, BT’s strategy director, who bases her calculations on a 20% take-up of fibre-optic by customers. “People will struggle to use up 20Mb-25Mb for the foreseeable future.”

Virgin Media disagrees. Chief executive Neil Berkett hopes superfast broadband will become a selling point. He can push up speeds for little extra cost because Virgin cables to half of Britain’s households are already in the ground after an installation programme that cost £13 billion a decade ago.

Other operators are not in a hurry to commit funds. The problem is a lack of obvious demand. Consumers have grown used to “free” broadband offers from Carphone Warehouse and BSkyB - 39% owned by News Corporation, parent company of The Sunday Times.

Caio concedes that an application has yet to be invented that needs anything other than copper, which can be souped up to offer 24Mb a second with ADSL+ technology.

“There’s not much evidence so far that the mass market is willing to pay extra for higher broadband speeds,” said Ian Watt at Enders Analysis. He thinks a new wave of investment will benefit BT, which is trying to improve its television-over-broadband service BT Vision, and Sky, which could defend more easily against Virgin’s video-on-demand.

Ofcom hopes that the competitive nature of the industry will win out, not least because mobile broadband is beginning to pose a threat to traditional landline providers.

“If you are a fixed operator you have to be thinking about offering more speed, something bigger and better,” said Richards. “That is why the underlying competition is very valuable.”

It looks as though Britain’s next-generation network will be a patchwork affair, both regionally and technologically. Wireless broadband and sewer-laid cables will all play a part.

Geo, which owns 100 kilometres of broadband cables running through the London sewers, maintains that installing fibre-optic cables is quicker and 40% cheaper than digging up the roads. While it has no plans to run the cable into homes, it acts as a carrier for Tiscali and Talk Talk internet traffic.

Chris Smedley, Geo’s chief executive, believes the sewers’ time has come. “Fibre is one thing you can bet your hat on.”

In time, everyone is hoping that internet users will develop a need for speed - and be prepared to pay for it.

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