By Liana B. Baker

NEW YORK (Reuters) - Japan's SoftBank Group Corp (9984.T) is prepared to give up control of Sprint Corp (S.N) to Deutsche Telekom AG's (DTEGn.DE) T-Mobile US Inc (TMUS.O) to clinch a merger of the two U.S. wireless carriers, according to people familiar with the matter.

SoftBank has not yet approached Deutsche Telekom to discuss any deal because the U.S. Federal Communications Commission has imposed strict anti-collusion rules that ban discussions between rivals during an ongoing auction of airwaves.

After the auction ends in April, the two parties are expected to begin negotiations, the sources told Reuters this week.

Two and a half years ago, SoftBank abandoned talks to acquire T-Mobile for Sprint amid opposition from U.S. antitrust regulators. That deal would have put SoftBank in control of the merged company, with Deutsche Telekom becoming a minority shareholder.

T-Mobile was worth around $30 billion at the time, but its market value has since risen to more than $50 billion as it overtook Sprint as the No. 3 wireless carrier by subscribers. Sprint's market value is around $36 billion, roughly the same as in 2014.

Deutsche Telekom Chief Executive Tim Hoettges has said in recent months that the German company is no longer willing to part with T-Mobile, prompting SoftBank to explore a new strategy towards a potential combination, the people said. Deutsche Telekom owns about 65 percent of T-Mobile.

SoftBank, which owns about 83 percent of Sprint, has been frustrated with its inability to grow significantly on its own in the U.S market, which is dominated by Verizon Communications Inc (VZ.N) and AT&T Inc (T.N), the two largest U.S. carriers.

While SoftBank is still open to discussing other options, it is now willing to surrender control of Sprint and retain a minority stake in a merger with T-Mobile, the sources said. They asked not to be identified because the deliberations are confidential.

The Reuters report sent shares of T-Mobile surging as much as 7.9 percent before they eased back to close up 5.5 percent at $63.92. Shares of Sprint ended 3.3 percent higher at $9.30.

Investors have said a merger between T-Mobile and Sprint, ranked third and fourth respectively, would still face antitrust challenges, but made strategic sense as the industry moves to fifth-generation wireless technology.

Carriers will need to spend billions of dollars to upgrade to 5G networks that promise to be 10 times to 100 times faster than current speeds.

SoftBank, Sprint, Deutsche Telekom and T-Mobile all declined to comment.

"We may buy, we may sell. Maybe a simple merger, we may be dealing with T-Mobile, we may be dealing with totally different people, different company," SoftBank Chief Executive Masayoshi Son told analysts on the company's latest quarterly earnings call earlier this month.

With the advent of 5G, Deutsche Telekom may receive offers for T-Mobile from other U.S. companies, such as DISH Network Corp (DISH.O) and Comcast Corp (CMCSA.O). Sprint could also be an acquisition target for other companies, the sources said.

Dish declined to comment and Comcast did not immediately respond to a request for comment.

DISCOUNTING PLANS

Under CEO John Legere, T-Mobile has rolled out unlimited data plans and international roaming packages. Combined with aggressive marketing, this has boosted T-Mobile customer base at the expense of its rivals.

T-Mobile said it had 71.5 million total customers while Sprint had 59.5 million at the end of 2016.

T-Mobile is now almost as big as Deutsche Telekom's German business. "We are not in the mood of selling the business," Hoettges told investors last November.

While Sprint's customer base has also grown under CEO Marcelo Claure and financials have improved, the growth was primarily driven by heavy price discounts. Despite new investment, the company's network is still viewed by many consumers as weaker than its rivals.

Reuters could not determine how much of a premium SoftBank may want Deutsche Telekom to pay for control of Sprint.

Barclays analysts wrote in a note in December that a merger of T-Mobile and Sprint could result in $25 billion to $30 billion in synergies but said, "it is not imminently clear to us that the various regulatory agencies would reverse course having already blessed the outcome of a four-player market."

The FCC and the U.S. Department of Justice sent strong messages in 2014 that they did not want Verizon, AT&T, Sprint and T-Mobile to merge among themselves.

Since then, AT&T acquired satellite television provider DirecTV and signed an agreement to buy media giant Time Warner Inc (TWX.N), though that deal is still under regulatory review and has attracted criticism from U.S. President Donald Trump. Verizon has also been exploring other acquisitions.

Antitrust experts said it was difficult to predict how the Trump administration would view a T-Mobile-Sprint merger since key antitrust appointments at the Justice Department have not been made. It is also not clear how such a combination would be viewed by the FCC, whose new chairman Ajit Pai is viewed as more business-friendly than his predecessor.

"I am of the camp that that will not happen even in a Trump administration," Christopher Marangi, co-chief investment officer at GAMCO Investors Inc, said on the prospects of a T-Mobile-Sprint combination. "That kind of merger means lots of job cuts in the U.S."

Craig Moffett, an analyst at MoffettNathanson, said price wars between Sprint and T-Mobile have driven down overall wireless prices for consumers.

"Antitrust regulators could well argue that this is precisely the dynamic they would want to preserve," Moffett added.

Son has said he expects his company to benefit from Trump's promised deregulation of the U.S. economy. After meeting Trump in early December, Son pledged to invest $50 billion and create 50,000 jobs in the United States.

(Reporting by Liana B. Baker in New York; Additional reporting by Sophie Sassard in London, Harro Ten Wolde and Arno Schuetze in Frankfurt, Anjali Athavaley in New York and Diane Bartz in Washington; Editing by Greg Roumeliotis and Tiffany Wu)