Britain is at risk of falling behind the rest of the world unless the infrastructure to deliver faster broadband connections is put in place, an industry report has said.

The next two years will be crucial for setting up what has been dubbed the 'next-generation' broadband network in the UK; needed to handle future applications, such as entertainment on demand, internet telephone services and video communications, according to the Broadband Stakeholder Group (BSG).

This communications industry body said that in advanced countries such as Japan, Korea and the USA, similar next-generation connections have already been built on the back of competition between telecoms and cable companies, along with government support.

The same is needed in the UK, the report argues, to stop a new digital divide being formed and said: "Broadband has been important to ensure social inclusion and the health of the rural economy. However, we should not assume that the UK will maintain this position."

Ispa, the trade body for internet service providers, said it welcomed the report and the fact that it was stimulating a debate about broadband. A representative said: " Ispa has long been of the belief that competition is what drives technological innovation, but there is a need for investment and support for the industry from the government."

The BSG said the Government and regulator Ofcom need to set a target of 2012, at which time the UK should still be among the top nations for broadband penetration and speed. It called on Ofcom to regulate the way next-generation broadband will work.

Andrew Ferguson of consumer broadband website Thinkbroadband said: "We agree that the next couple of years are critical. Until someone somewhere is willing to give a clear confirmation of funding, [faster broadband] will remain largely the domain of small trials."

He added that new services would come at a price: "One fact of life that users need to accept is if we the consumers want companies to give us faster broadband options, we should be prepared to pay for them."