Both Sprint and T-Mobile have lagged behind Verizon and AT&T, the two largest wireless companies, and the proposed deal keeps the new company entrenched at number three. The proposed all-stock deal values Sprint at about $59 billion and the combined company at $146 billion, including debt. Without debt, the deal values Sprint at $26.5 billion.
The new company — which is touting an ability to create a large scale 5G network and thousands of U.S. jobs — will preserve T-Mobile's name, and will have dual headquarters in Bellevue, Washington, and Overland Park, Kansas. John Legere, T-Mobile's CEO, will retain the top job in the newly formed carrier.
"This combination will create a fierce competitor with the network scale to deliver more for consumers and businesses in the form of lower prices, more innovation, and a second-to-none network experience — and do it all so much faster than either company could on its own," Legere said in a statement.
"As industry lines blur and we enter the 5G era, consumers and businesses need a company with the disruptive culture and capabilities to force positive change on their behalf," he added.
The news confirms CNBC's earlier reporting that the two companies would strike an agreement. The companies came close to a merger agreement in November, before SoftBank CEO Masayoshi Son pulled out after weeks of talks.
The agreement still faces stiff regulatory scrutiny from the Trump administration, which has thrown up resistance to at least one other megadeal — AT&T's proposed acquisition of Time Warner.
If approved, the combined T-Mobile-Sprint would have about 100 million retail subscribers but would be better positioned to compete against Verizon and AT&T. The two larger companies have 116 million and 89 million subscribers, respectively. Both have mapped out a strategy for transitioning to 5G within the near term.
"We remain focused on providing customers with the most reliable 4G network as we build the world's first and best Ultra-Wideband 5G network — not just a proposal that may or may not happen in the next couple of years," Verizon spokesman Richard Young said in a statement.
"As we've seen time and time again, there's Verizon's network and then there's all the rest," he added.
—The Associated Press contributed to this article.
Correction: An earlier version misstated which entity's value is $26.5 billion without debt. It's Sprint. An earlier version of this story misstated the number of AT&T subscribers. As of its latest earnings release, AT&T has 89 million subscribers.