The competition regulator has given TPG the green light to continue rolling out high-speed fibre broadband to some 500,000 units and businesses in capital cities.
The decision is a blow for NBN Co, which is worried that competition for high-value urban customers will limit the money available to subsidise an unprofitable regional rollout.
Internet providers are prohibited from rolling out new high-speed networks that could undercut NBN Co's pricing model.
But the Australian Competition and Consumer Commission (ACCC) found TPG's plans are covered by a loophole allowing providers that had high-speed networks in place in 2011 to expand them within one kilometre.
TPG's plan affects Sydney, Adelaide, Brisbane, Melbourne and Perth.
NBN Co has indicated that technological constraints will prevent it from rolling out its fibre cables to the basements of buildings connected by TPG.
The ACCC will now investigate whether services like TPG's should be opened up for wholesale access.
