The merger was approved by the board of directors of each company, but must still past muster with stockholders and government regulators.
Following the announcement, Federal Communications Commission Chairman Michael Powell said the government would thoroughly review the proposed merger.
"Whenever we sort of consolidate the market one fewer, we're going to take a very, very hard and rigorous look at that," he told reporters.
The new company will be called Sprint Nextel and will boast 35 million service subscribers and an estimated $70 billion in net worth.
"We are confident that Sprint Nextel will generate efficiencies that will benefit customers, shareholders and employees," said current Nextel chief Tim Donahue. "The new company will capitalize on its leadership position in key growth areas, unmatched asset mix, clear technology migration path, brand strength, innovative products and services and talented employees."
Cingular Wireless, with 47 million subscribers, and Verizon Wireless, with 42 million, are currently the largest companies specializing in mobile phone and technology services. Cingular acquired AT&T Wireless two months ago.
The Wall Street Journal reported Tuesday that Verizon was considering a bid for Sprint with the wireless service it runs as a joint venture with Vodafone Group PLC. Vodafone denied it had discussed the matter with Verizon.
The Sprint-Nextel deal has a break-up fee of $1 billion, which means that if another company wanted to buy either company, that suitor would have to pay the fee to the party left out.
A Sprint statement said that the new company's executive headquarters will be located in Reston, Va., the home of Nextel, while its operational center will be Overland Park, Kan., the current headquarters of Sprint.
Gary Forsee, the current chairman and CEO of Sprint, will reportedly become president and CEO of Sprint Nextel. Tim Donahue, currently president and CEO of Nextel, will become chairman of the new company.
In the merger each company will reportedly be equally valued at about $35 billion. Company officials said the merger will save costs by combining each firm's resources and by working together to build a new technologically advanced network. They also said some jobs would be cut.
"At the end of the day, it will be about rationalizing and downsizing," said Gary Forsee, Sprint's chairman and chief executive.