Europe must move on to a new internet address system as quickly as possible, according to the European Commission.
The Commission is worried that startup business will struggle to find domain names, leading to a stifling of innovation.
A plan sent to the European Parliament sets a target of 25 per cent of web users in the EU to be using the new system by 2010.
"This is very much a case of a stitch in time saves nine," said Viviane Reding, EU Commissioner for Information Society and Media, in a statement unveiling the plan.
Reding said futuristic systems such as intelligent street lighting and heating systems were already projected to boost demand for internet addresses a thousandfold.
The IPv4 system is running out of capacity, and will be filled by 2011.
A move to the new system – known as IPv6 – will provide limitless addresses.
Governments should migrate their core networks to IPv6 and add a requirement for it to public procurement contracts, says the report.