It could cost more than $350 billion to bring universal access to the fastest Internet connection in the U.S., the Federal Communications Commission said Tuesday.

The conclusion is part of the FCC's initial report after having held dozens of public meetings and collecting thousands of comments on its national broadband plan, which is due in February.

The private sector is the driving force behind Internet investment, said the FCC's Blair Levin, who is coordinating the commission's national broadband effort. The government's economic stimulus package put forth $7 billion for Internet buildout, but Levin has said that sum represents only a small portion of what is needed to blanket the country with Internet access. It's still uncertain how much of the cost would be borne by taxpayers.

"Most of that ecosystem is funded by the private sector," Levin said at an FCC meeting Tuesday. "We expect that to continue. Where can the government play a role in ensuring and improving the role of that ecosystem?"

The cost to deploy the most basic Internet access to all parts of the country is only around $20 billion, but FCC officials questioned whether current basic Web speeds will be enough to foster future economic growth.

The average consumer today uses the Internet for Web browsing, email and instant messaging, and entertainment, said Peter Bowen, the applications director for the FCC's Omnibus Broadband Initiative.

However, the applications expected to drive future markets -- streaming video, video teleconferencing and electronic medical monitoring -- require considerably higher speeds, Bowen said.

In drafting the broadband plan, the FCC will need to determine how to measure the quality and speed of consumers' Internet connections, which could impact such Internet service providers as Verizon Communications Inc. (VZ), Comcast Corp (CMCSA) and AT&T Inc. (T).

Internet service providers generally discuss the speeds they offer in terms of the highest levels available for subscribers, rather than disclose the typical user experience. Actual broadband speeds lag providers' advertised speeds by as much as 50% to 80%, according to the FCC.

"It is critical to focus on actual end-user speeds during busy hours of usage, when typical Americans want to be online," said Shawn Hoy, a member of the FCC's broadband team.

Competition is limited among providers who offer the highest speeds, according to Rob Curtis, another FCC broadband team member. At least half of Americans only have access to one provider that can offer Internet speeds that would support two-way video conferencing and other high-speed applications, Curtis said.

The picture gets more complicated when mobile Internet is taken into account. Smartphones like Apple Inc.'s (AAPL) iPhone or Palm Inc's (PALM) Pre are putting a crunch on the nation's wireless capacity.

Smartphones will overtake sales of traditional cell phones by 2011, according to the FCC. Smartphone users generally eat up far more cellular minutes and bandwidth than people with more traditional cell phones.

The FCC is considering how to make more airwaves available. Companies and agencies that hold licenses to frequencies tend to want to hang onto them, but the FCC's Levin warned earlier this month that licensees should be prepared to justify their ownership.

It isn't clear where the needed airwaves will surface. The U.S. government, namely the Defense Department, holds a sizable chunk. Industry insiders say the government's airwaves could be more efficiently used in the private sector.

An industry group, CTIA-The Wireless Association, Tuesday sent a letter to the FCC saying the government needs to identify a significant swath of airwaves for commercial licensees.

CTIA's members include Verizon Wireless, AT&T, Sprint Nextel Corp. (S), and T-Mobile USA, a unit of Deutsche Telekom ADR (DT). Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone PLC (VOD).

-By Fawn Johnson, Dow Jones Newswires; 202-862-9263; fawn.johnson@dowjones.com