Restructuring Diversified Telecom Operators

The paper examines the divestiture trend among diversified major telecom operators using a combined agency and transaction cost economics approach. Our illustrative cases seem to support both the governance failure thesis of agency theory and the efficient governance theses of corporate finance and transaction cost economics. That is, manager-controlled companies tend to grow oversized and overdiversified before being transformed into more efficient scale and scope by actively intervening owners and bondholders. As the previous manager-controlled companies become increasingly owner-controlled, and as the essential assets shared by the various businesses become less specific and more redeployable, and as their intermediate services become more tradable, previous core businesses of integrated companies will gradually be divested and organized either as autonomous firms or as part of more specialized companies.