The proposed mega merger between Brazilian carriers Telemar Participacoes, which operates under the Oi brand, and fixed line operator, Brasil Telecom, moved a step closer to reality this week as the local regulator gave preliminary approval for the deal.

The acquisition was first announced in April, when Telemar announced plans to pay out Reais5.9bn (Eur2.26bn) to acquire the parent of Brasil Telecom, accompanied by an offer to minority shareholders which would increase the total purchase price to about Reais12.4bn.

At the time the move has stirred controversy, due to it being illegal under current rules. However the government is in favour of changing the law to allow for some consolidation in the Brazilian telecoms market, changes which are now seen to be taking place.

Should the deal go ahead it will create a home grown fixed line carrier with over 60 per cent market share as well as around 16 per cent of the mobile market.

Analysts have argued that the deal should be allowed to go ahead, because a super national telco (majority-owned by Brazilian capital) would be able to compete on equal footing with Spanish conglomerate Telefonica and Mexican group Telmex/America Movil – the other telcos with significant power in Brazil.