Institutional Influences on Organizational Structure and Behavior: An Evaluation of Business Models of the Telecom Industry

The debacle of the telecommunications industry in the late 1990s resulted in grave consequences to investors, workers, financial institutions, telecom companies, and the economy in general worldwide. As a relatively recent event, studies on what caused this great telecom bubble have just started to emerge. While these studies offered a variety of explanations, ranging from greedy executives and investment bank analysts to a failed legal and regulatory environment, one factor seems to stand out: a large number of telecom startups, especially the competitive local exchange carriers (CLECs), adopted similar business plans. In this study, we investigate the isomorphic business models of the CLECs from the perspectives of the institutional theory. We argue that the combined coercive, mimetic, and normative institutional forces exerted on the companies by the actors who controlled the funding, managed the business, and provided information created the isomorphic business models, which in turn contributed to the demise of these companies and thus the burst of the telecom bubble. Evidence of the institutional influences on CLECs is presented and the consequences are discussed.