Inexio, 59%-owned by buyout group Warburg Pincus, is expected to launch a sale in the second half of the year that could value it at more than 1 billion euros (£911.78 million), the sources said.
Rival Deutsche Glasfaser, majority-owned by private equity investor KKR, is also preparing a sale which may start in late 2019 or early 2020, they added.
Rothschild and Evercore are leading the Inexio sale, while Morgan Stanley is preparing the Deutsche Glasfaser auction, the people said.
The companies and their advisers declined to comment or were not immediately available for comment.
Independent fibre-optic companies have built franchises in German regions and cities, positioning themselves to capitalise on government efforts to build a networked "Gigabit Society" in the coming decade.
The rollout of 5G mobile networks is about to start in Germany after four operators paid billions for new spectrum at a recent auction, and this will also require greater fibre-optic connectivity.
This involves erecting cells connected by fibre-optic to main mobile masts - enabling rapid downloads and shortening reaction times so that, for example, self-driving cars could navigate city streets safely.
Innexio and Deutsche Glasfaser have been building fibre-to-the-home connections in underserved parts of Germany, creating an opportunity for a potential buyer to own businesses with de facto local monopolies, said Wolfgang Heer, head the Buglas association representing independent fibre-optic firms.
Both companies compete with Deutsche Telekom, another main rival in broadband services has recently gained scale. Vodafone's $22 billion purchase of Liberty Global's cable networks in Germany and central Europe, is helping the British company to become Europe's largest mobile, broadband and TV provider.
Inexio, in which German investor DBAG owns a minority stake, is expected to report earnings before interest, tax, depreciation and amortisation of about 50 million euros this year and may be valued at more than 20 times that, the people said.
Deutsche Glasfaser, set up in 2011 by Dutch investor Reggeborgh which retained a stake after KKR's 2015 investment, is slightly bigger than Inexio and could be valued at 1.5-2 billion euros in a potential deal, they said.
The sources also said any buyer would also be on the hook for heavy capital expenditure.
"Valuation will depend on the roll-out plans of the companies and in both cases existing private equity investors have reached limits on further investments," one of the people said, adding that Warburg Pincus may opt to retain a minority stake in Deutsche Glasfaser.
Infrastructure investors such as EQT, Macquarie, Allianz, Global Infrastructure Partners, DWS, Antin and Infravia as well as telecoms groups such as United Internet are expected to be targeted in the upcoming auctions, the people said.
A telecoms operator that needs to expand its footprint could also be interested, said Heer, adding that having fibre infrastructure in place would ease the task of meeting calls by the regulator to deliver 5G services to a broad public.
Deutsche Glasfaser has 500,000 network connections and has committed to build 1 million connections, investing 1.8 billion euros.
Inexio in 2016 was valued at 250 million euros through Warburg Pincus' investment led by former Deutsche Telekom CEO Rene Obermann, who joined Inexio's board.
(Reporting by Arno Schuetze. Editing by Jane Merriman)
By Arno Schuetze and Douglas Busvine