Chavez was re-elected after a bitter referendum battle in August

The firm will provide phone and TV services to the government and military but will also seek private customers.

The firm, which has funding of 9.6bn bolivars($5m), said it would charge lower prices than existing operators and extend services to rural areas.

The Venezuelan market is dominated by US and Spanish owned firms.

State role

CVG Telecomunicaciones will be controlled by Corporacion Venezolana de Guayana, one of the country's leading industrial firms which manages the country's hydroelectricity generation.

Venezuela's telecommunications industry has been open to competition since 1990.

However, since coming to power in 1998, President Chavez has sought to increase the role of the state in the country's economy.

Venezuela's fixed line telecoms market is dominated by CANTV, owned by US firm Verizon Communications.

The cellular phone market is dominated by Telcel, bought by Spanish firm Telefonica for $5.85bn earlier this year.

Existing telecom operators expressed concern that a state-funded player in the market could distort competition and damage the growth of services.

"This state company could have fiscal and regulatory benefits that private firms would not have and it will also be taking away market share," Ricardo Baquero, from Venezuela's telecommunications chamber Casetel, told Reuters.

According to Mr Baquero, the number of Venezuelan households able to access telecommunications services has risen from 7% to 50% since privatisation.