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This is fine as long as:

- the government doesn’t use any tax revenue to do this nor impose any debt on the government

- the government doesn’t get any special privileges for access to lay fiber

Then it’s no different than a regular competitor. This is often not the case though and it makes it very difficult for anyone to compete.

the government doesn’t use any tax revenue to do this nor impose any debt on the government

Where is the initial capital investment supposed to come from? And what is the purpose of collecting taxes other than to provide services to the citizens? What's different between garbage collection, water, power and internet?

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