A British "e-university", which will deliver online courses, is being set up using government and private funding.
Comprised of a select group of institutions with overseas partners and commercial associates, the e-university could be enrolling its first students on online programmes in two years' time.
"We are all aware of the development in the United States and elsewhere of major virtual and corporate universities," said Sir Brian Fender, chief executive of the Higher Education Funding Council for England.
"The funding council is concerned that higher education in the United Kingdom should be able to capitalise on its considerable expertise in new technologies and its reputation for quality to secure a significant share in the markets accessed by these virtual and corporate providers, both overseas and in the UK.
"We wish to explore how we can catalyse a virtual learning initiative of a scale and quality that will challenge the best in the world."
Set-up costs are estimated at Pounds 200 million over two years, with half the funding coming from the private sector. The Department for Education and Employment is looking to the Treasury to include an extra Pounds 100 million to fund the e-university in the settlement from the comprehensive spending review.
Initial membership will be confined to a select few. Applicants will be asked to name other partners with which they would be interested in forming a consortium, including overseas institutions and private companies.
Many universities have already formed consortia to deliver higher education to online markets. The funding council is discouraging proposals from consortia that are regionally based. "We believe we need to bring together the strongest candidates on a national basis," said a council insider.
Sir Brian said: "A sensible way to start is with a small number of institutions. The question of growth will depend on the quality of provision of those within the e-university umbrella. We don't want to exclude universities but the quality of provision will be very high. We would want the e-university to be clearly positioned overseas as the flag-carrier for the best of UK higher education in virtual delivery."
Some elite universities already offer courses entirely online. Oxford University has a two-year part-time undergraduate diploma in computing via the internet.
The e-university will probably be set up as a company, jointly owned by a consortium of institutions and private sector and overseas partners. It will not be a new, self-standing institution and it will not have its own physical campus where students are taught.
Private-sector partners could come from the telecommunications and publishing industries. The project may also attract venture capital.
The funding council wants institutions to identify potential overseas partners in target countries including China, India, Brazil, Argentina and South Africa. Existing links with institutions in countries such as Singapore, Malaysia and Indonesia could prove useful.
Many British universities already have overseas and commercial partners. For example, the commercial company Unext was formed by the London School of Economics, the University of Chicago, Stanford University, Carnegie Mellon University and Columbia University. It offers business education to workers.
This week, the universities of Leeds, Sheffield, Southampton and York announced a partnership with four American universities: the University of California at San Diego, Pennsylvania State University, the University of Washington and the University of Wisconsin-Madison.
Others have formed links with publishing companies. Heriot-Watt University and Pearson offer MBAs in which the university assesses and accredits courses, the content of which is developed by Pearson and financed by the company.
Last month News International, which publishes The THES, formed a partnership with 21 Scottish universities and colleges to market and distribute distance-learning courses developed by the institutions.
The British e-university project grew out of work commissioned by the Committee of Vice-Chancellors and Principals and Hefce. Robin Middlehurst of the University of Surrey led the study on the impact of virtual and corporate universities on UK higher education. Her report, The Business of Borderless Education, is due to be published on March 28.
"Our study identified a range of markets - including high-status, high-brand, but also others. For example, for overseas markets universities should be thinking about different levels of literacy and computer literacy," said Professor Middlehurst.
She added: "We need to be very careful in identifying what markets we are talking about and what structure we are talking about and whether the structure is appropriate for the market and for how long. It is likely the markets will become differentiated."
The e-university project steering group met for the first time this week. Its membership includes representatives from the pre and post-1992 universities, and one university college.
Geraldine Kenney-Wallace, vice-chancellor of the British Aerospace virtual university, is a member and Sir John Daniel, vice-chancellor of the Open University, is a special adviser.
Sir John warned of difficulties in policing fees. For example, Oxford University charges overseas students higher tuition fees on its computing via the internet course - Pounds 1,500 a year compared with Pounds 780 for European Union nationals - because the course receives a public subsidy for EU students.
Sir John said that many students already used "convenience" addresses in the UK and it would be difficult to know for sure whether an e-student was a home or overseas student. "When it is impossible to know for sure where a student is from, the notion of fees goes out of the window," he said.
The funding council will shortly issue invitations to tender for two projects: a survey of the market for online higher education both at home and overseas; and advice on the legal, financial and business implications of setting up a company to deliver online higher education, including issues of management and governance.
By early July, the funding council aims to issue invitations to bidders. The company will be set up in about a year's time. The first students will enrol soon after. Alison Goddard THES reporters follow Blunkett's reform package
UK BUILDS ON ITS TRACK RECORD
"The United Kingdom has a strong track record of world-leading initiatives in the use of new technologies in higher education."
Sir Brian Fender, chief executive of the Higher Education Funding Council for England.
"We have high-quality materials, excellent staff, we speak in English and the UK media capacity is outstanding."
Ron Cooke, vice-chancellor of the University of York, who chairs the Hefce steering group for the e-university project.
"The price of computing and communications will drop and portable lightweight machines will be developed ... The timing is perfect."
Tim O'Shea, master of Birkbeck College and provost of Gresham College, London.
"There is a terrific opportunity for the UK to take a big slice of the international online market. In terms of there being a need for a government project to come up with serving this market, the answer is yes."
Jonathan Darby, who develops online courses for the University of Oxford.
"Student preference is very important."
Robin Middlehurst of the University of Surrey, author of The Business of Borderless
"There are many exciting initiatives on on-line learning taking place in universities. The notion of bringing them together and aiming at the international market is timely. It will help redefine the nature of universities in the 21st century."
Ray Cowell, vice-chancellor of
"All options are open and we have not even begun to discuss the different ways this might be taken forward. It needs to be dealt with very carefully, but we cannot just sit around because others are not so inhibited."
Howard Newby, CVCP president.
"Even a virtual university will need a full complement of highly qualified and skilled staff ... it must not undermine higher education in the Third World."
David Triesman, general secretary, Association of University Teachers.
"We welcome the move. We have always said that to be successful overseas British universities should be working in consortia. The British Council runs a parallel initiative to sell British distance learning."
Hector Munro, director of export promotion for the British Council.
"It is all very well for Blunkett to talk about a virtual university but the reality is of virtually bankrupt universities and virtually impoverished students."
Evan Harris, Liberal Democrat spokesman.