The FT today reports that, as part of Carter's probe into future provision of public service content, Channel 4 could be "shoehorned" into a new and bigger broadcaster.
Should such a proposal emerge, and come to fruition, it would spell the end of Channel 4 as an independent entity and signal that it has lost its battle for public funding.
A DCMS spokesman said: "This is a leaked version of an early draft of the Digital Britain report. Ministers have not yet taken decisions and the draft does not reflect Government policy."
According to the FT report, the early draft states this new wider broadcaster would be in operation by 2012 and would work to create an alternative news system to the BBC.
It also claims Channel 4 has lost its battle to plug its £150m deficit with government funding.
In recent months, the debate over the future provision of PSB content, including C4's future funding, has come to the fore. Earlier this week, BBC director-general Mark Thompson suggested Channel 4 could merge with Five to secure its future - a move reportedly favoured by Carter.
Meanwhile, the BBC has proposed to share its technology and R&D to help the commercial sector provide PSB content in the future. Others have argued for some of the BBC's licence fee to be shared among commercial players.
Carter is finalising the government's Digital Britain report, which aims to ensure future growth across the communications, technology and broadcasting sectors.
In parallel with this, Ofcom will soon publish its final report on the future provision of public service content.
Both reports will shape government policy and, potentially, a future Communications Act.
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