A Wall Street Journal report Friday afternoon citing sources on both sides indicated No. 3 Sprint Corp. and No. 5 Nextel Communications Inc. had reached a tentative agreement on an all-stock $36 billion deal. According to the report, Sprint would pay around 1.3 shares for each Nextel share plus a small cash consideration that would value the deal at more than $36 billion. Sprint Chief Executive Officer Gary Forsee would become CEO of the new operation with current Nextel CEO Tim Donahue assuming the chairman position. Both companies would also share board positions.

Analysts noted that Nextel, which is the last remaining independent nationwide wireless operator, would have the most to gain from the deal and would thus likely have to cede final ownership to Sprint for a deal to be completed.

Neither Sprint nor Nextel would comment on the report, though reports indicated that the deal could be announced as early as next week.

"Like everybody else, we do continue to evaluate our strategic opportunities," said Sprint Chief Financial Officer Bob Dellinger at a Credit Suisse First Boston conference this week. "That's appropriate for all businesses, and we continue to do that."

SG Cowen & Co. telecommunications industry analyst Tom Watts, who has been speculating on a possible deal between Sprint and Nextel since earlier this year, put the possibility of an agreement being reached at more than 70 percent.

One source noted rumors of the deal could have been a test balloon sent up by both companies to gauge investor reaction or a move by Nextel to place pressure on other industry players to begin merger talks. Sprint's stock was up more than 8 percent Thursday following the report, while Nextel's stock increased more than 6 percent.