Sprint Corp. is working toward a possible bid for rival T-Mobile US Inc., people familiar with the matter said, setting the stage for a giant telecom merger that if permitted by regulators would leave the U.S. wireless market dominated by three big companies.

Sprint is studying regulatory concerns and could launch a bid in the first half of next year, the people said. A deal could be worth more than $20 billion, depending on the size of any stake in T-Mobile that Sprint tries to buy.

A bid would cap a period of extraordinary consolidation in the U.S. wireless market, coming just months after SoftBank Corp. acquired Sprint and T-Mobile merged with MetroPCS Communications Inc.

A merger of the third and fourth largest U.S. carriers would create a sizable competitor to industry leaders Verizon Wireless and AT&T Inc. But it would likely face tough opposition from antitrust authorities, who worry consumers could suffer without a fourth national competitor to keep a check on prices.

Sprint hasn't decided whether to move ahead with a bid. Going forward despite regulators' concerns would be highly risky.