The rise and fall of the competitive local exchange carriers in the U.S.: An institutional perspective

Abstract

The debacle of the telecommunications industry at the turn of the millennium resulted in significant consequences for investors, workers, financial institutions, telecom companies, and the economy in general worldwide. In the midst of the telecom bubble, the CLECs (competitive local exchange carriers) adopted similar or identical business plans and saturated the market, which resulted in destructive competition. In this study, we investigate the isomorphic business models of the CLECs from the perspectives of the new 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 the information fashioned the isomorphic CLEC 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 and the actors exerted the influences are presented and their consequences are discussed.