The recommendation comes in communication minister Lord Carter's interim Digital Britain report, published today.
Prime Minister Gordon Brown said digital technology was as important today as "roads, bridges and trains were in the 20th century".
The 22 recommendations in the report cover TV and radio broadcasting and the UK's digital infrastructure. It includes a section on the issue of internet piracy.
New digital rights agency
The Government says it will look at ways of setting up a new digital rights agency and wants to introduce legislation requiring internet service providers (ISPs) to notify illegal file-sharers directly about their activity. Last week it abandoned plans to force ISPs to ban users found guilty of illegally downloading music.
Culture secretary Andy Burnham has also confirmed that digital audio broadcasting (DAB) will become the "primary distribution network" for radio in the UK, potentially spelling the end for traditional analogue FM radio.
The Government will look at how the digital switchover scheme – already in place for digital TV – could be expanded to help the transition to digital radio.
On the question of the future of Channel 4, Burnham said: "We will explore how we can establish a sustainable public service organisation which offers scale and reach alongside the BBC, building on the strength of Channel 4."
Last week Ofcom warned Channel 4 could face a bleak future unless a deal with BBC Worldwide or Channel Five could be agreed.