The competition watchdog has formed the preliminary view Telstra and TPG's spectrum-sharing agreement would improve regional coverage but it isn't ready to approve the deal.
The Australian Competition and Consumer Commission said on Friday TPG and Telstra had agreed to give it a second extension to decide on the $1.8 billion pact struck in May.
The decision had been due by October 17 but the commission now has until December 2 to rule.
The agreement would see Telstra obtain much of TPG's spectrum in outer-suburban and regional areas as well as 169 TPG mobile sites.
TPG would then shut down its remaining 556 mobile sites in those areas and rely on Telstra for mobile coverage.
In a 51-page statement, the ACCC said in weighing the public benefits and detriments of the deal, it is of the preliminary view it would immediately improve both Telstra and TPG's offerings.
"TPG will have greater network coverage or reach ... (and) Telstra will gain access to spectrum that will immediately improve its network quality," the commission wrote.
"The ACCC considers that this may increase choice for customers who need coverage in the Regional Coverage Zone."
But the ACCC said it needed to weigh that against longer-term impacts from any reduction in infrastructure-based competition from network operators.
The agency believes that if the transaction is denied, there is little chance TPG will invest in a full-scale build to match Telstra and Optus' coverage in regional areas.
But it might seek to enter a similar network-sharing pact with Optus, the ACCC said.
It is inviting more submissions from stakeholders as it works on the "complicated and nuanced review".
"The ACCC has today set out issues for further consideration and is calling for further views from industry and consumers on how these agreements may impact competition and whether there are public benefits," ACCC Commissioner Liza Carver said in a statement.
TPG said in a statement that while the ACCC had raised a number of issues, it accepted the proposition that the network-sharing arrangement would let it better compete for customers in regional areas.
The telecom said if approved, the deal would be a "win for regional Australia".
"Our aim in the following weeks is to ensure we have fully addressed each of the matters raised by the ACCC before it makes its determination on or before 2 December 2022," TPG said.
At 1.48pm AEST, Telstra shares were flat at $3.88 and TPG shares were down 0.1 per cent to $4.885 on a generally down day on the market.
