The new broadband could enable families to watch high-definition television or play interactive games over the web and simultaneously email files which are 20 times the size they can send over the existing copper network.

Due to the immediate success of the BBC iPlayer, launched six months ago, some connections on the old network are currently stretched to their absolute limits and BT is already spending more to increase its network capacity.

In order to establish the new speedy service, BT will have to dig up roads to put down a network of fibre-optic cables between their local exchanges and roadside cabinets. For a few customers in new builds who will have the new cables laid down right to their doorstep this means they can benefit from speeds of up to 100mbps.

BT’s announcement comes after its competitor Virgin Media raised the bar promising speeds of up to 50mbps this year.

The broadband service offered by BT will initially be available to 40 per cent of all households with speeds of up to 40 mbps; the plan envisions connecting 10million households to the new network by 2012, giving a further one million homes access to the headline speed of 100 mbps.

In order to fund the £1.5billion investment BT has already set aside £500million for new fibre-optic networks. The rest will be covered mostly by the suspension of the company’s share buy-back programme of £700million.

In return for the investment, BT has asked for a series of guarantees from telecoms regulator Ofcom, including an approval of higher profit margins when charging internet service providers (ISPs) to use the new network.

At the moment BT is only allowed to achieve a 10 per cent return on selling access to their network to ISPs. BT’s new chief executive Ian Livingston signalled BT could only commit itself to the investment if the regulators made it worth its while.

The scheme was welcomed by the Government and Ofcom, both of which are concerned that the UK’s competitiveness might be damaged if telecoms companies did not invest more in super-fast broadband.

The UK is lagging far behind countries such as France, Japan or the US which have already invested in fast fibre-optic networks.

Michael Phillips, product director at BroadbandChoices.co.uk comments: “BT must work hard to ensure that 100Mb/s really means 100Mb/s when the service is finally delivered to customers since a number of providers such as bethere and O2 already offer 24Mb/s and have plans to make this even faster.”

Mr Phillips said a recent survey showed consumers would welcome the new super-fast broadband: “The highest proportion of respondents said they were most interested in downloading films and high definition TV shows but relatively few said they currently spent much time watching films and TV shows online.”

“This highlights the fact that if connection speeds were improved through projects like this latest BT initiative,” he added, “consumers would have a much broader range of services they could make use of.”

© Fair Investment Company Ltd