Updated from 4:43 p.m. ET with closing stock prices.

NEW YORK (TheStreet) -- Sprint (S) is reportedly preparing a bid for competitor T-Mobile (TMUS), in a possible merger of the number three and four wireless carriers by market share in the U.S.

According to the Wall Street Journal, Sprint is preparing a takeover that could be worth in excess of $20 billion, however the telecom hasn't yet decided whether it will unveil a formal offer. A key issue in any prospective deal would be the blessing of the Justice Department, which rejected AT&T's (T) $39 billion takeover attempt of T-Mobile in 2011.

A key calculus in any deal would be Sprint's perception that regulators would tolerate a merger between two of the four nationwide wireless carriers. The DoJ and Federal Communications Commission have blessed smaller-sized takeovers such as AT&T's acquisition of Leap Wireless, Sprint's takeover of Clearwire and T-Mobile's merger with MetroPCS in 2013.

The Justice Department also recently allowed for the merger of U.S. Airways and American Airlines, in a deal that will create the world's largest airline and put a vast majority of the airline industry in the hands of four players.

Sprint, itself, was subject to a takeover battle in 2013 as DISH Network (DISH) sought to outbid SoftBank, a Japanese telecom that now holds majority control of the carrier.

Since then, a combination of Sprint and T-Mobile has been an oft-discussed merger in the consolidating telecom sector. Proxy filings in Sprint's takeover by SoftBank also indicated that the company had been close to a merger agreement with T-Mobile.

John Paulson of hedge fund Paulson & Co., a vocal investor in the telecommunications sector, has also floated the idea of a merger with Sprint and T-Mobile. Paulson currently is a large investor in both firms and has played an important role in many of the sector's biggest deals.

Sprint declined to comment for this story.

A Sprint and T-Mobile merger isn't the only transformational deal currently being speculated in telecom and communications markets. DISH Network has entertained the idea of a merger with DirecTV (DTV) following its failed bid for Sprint. Meanwhile, Charter Communications (CHTR) is reportedly close to submitting a takeover offer for Time Warner Cable (TWC). Comcast (CMCSA) is also a rumored bidder for some or all of Time Warner Cable.

A takeover of T-Mobile, DirecTV or Time Warner Cable would be one of the biggest mergers in recent years, and likely a culmination of consolidation throughout wireless and wireline communications networks in the U.S.

T-Mobile shares gained over 8% in Friday trading on the WSJ's report, while Sprint shares gained over 3%, closing at $8.43 a share.

What do you think is a more likely deal in 2014?

-- Written by Antoine Gara in New York.