A rule change allowing fixed-line telecoms to operate in more than one region of Brazil will spark competition.
An Associated Press report quoted Ronaldo Sardenberg, president of Brazilian regulator Anatel, as saying that the rule change Thursday would allow telecom Tele Norte Leste Participacoes or Oi, to buy Brasil Telecom, Brazil's No. 3 fixed-line carrier.
The new company would then compete against foreign players that dominate the market: Spain's Telefonica and Mexico's America Movil, which is owned by billionaire Carlos Slim, the report said.
Oi said in April it would pay 5.9 billion reals (â‚¬2.25 billion, US$3.5 billion) for control of Brasil Telecom in a government-backed deal that could create a huge fixed-line operator spanning much of Latin America's most populous country.
The merger would give the combined company about 17% of Brazil's fast-growing cell phone market.
As part of the change, however, Anatel also said Oi must split its broadband internet services into a separate company.
The Anatel decision now goes before the Communications Ministry which will allow for 30 days of public consultations on the proposed changes before being presented to President Luiz Inacio Lula da Silva for approval.