If the number of links grows linearly, then your performance is going to be poor -- though this may be hidden by over-subscription.
Keep in mind that if your network is actually a tree, there is only one route from any point to any other, so you have no redundancy. (It is also possible the redundancy/network complexity is not directly obvious -- when I was dealing with these matters we had a single IP PVC set up over a frame relay network -- even though it looked like a single IP connection, there were failover paths setup within the frame-relay network, so the network topology was actually a bit more complex than it looked from the IP level -- and more expensive than it looked from the IP level, too.) Most of the IP networks I dealt with at the time had no single point of failure between any interior node, so it was a partial graph.
The costs can be tricky. Occasionally you hit the corner case of 'we want to upgrade from a T1 to a T3 in this location, but that requires a larger router, and there is no more space left in that colocation, so we would have to re-home all the customers to a different colocation.' (Also, if the equipment changes, on-site spares have to be factored in, plus tech training.) If you want another non-linear cost, consider customer support -- if you maintain X support staff per N customers, for every so many support staff, you will probably require an additional manager/human resources/etc. person. That requires a certain number more customers to cover the costs of that position, etc.
It is possible to beat this, no question, but there are an awful lot of small ISPs that tried to become big ISPs that failed that suggest that a lot of folks did not figure out the scaling problems ahead of time. The goal of a business is *profit*, not necessarily *size*. If growing 'larger' would not result in more profit, there is no incentive for the company to build out -- that's pretty basic business. It may depend on the right opportunity/technology to make the growth possible.
(You might do a google search on business 'growing too fast'. Growth is not always a good idea, nor always profitable.)
As far as mergers go, you need to factor in whether or not the merging companies have a 'paid for' network infrastructure, etc. If the two networks are already functional as is, then there is no need to do any expansion or new interconnection -- there is no additional capital expenditure involved. The networks could be run as is. (And of course, it's cheaper to buy out someone who has failed, or at least their equipment, cheap, after they've grown too fast and went bust.)
The problem I am referring to is the build-out stage where you have to invest cap-ex to build out capacity and need to be able to recoup that (before the equipment becomes obsolete.) The bigger/more complex the network is, the more it costs to fiddle with it. (Well, if you want to keep it running, that is. If you toss quality out the window, you can do these things really cheap.) The problem can be beat, but it's not necessarily an easy one.
So, given that growth does not always equate to profit (and growing too much or over-extension can lead to an implosion), and that revenue does not scale with costs (network growth is non-linear (even trees), personnel growth is non-linear, etc.) there is a certain pressure not to grow. There has to be a trick that enables the scaling -- better customer support system, new network gear at a cheaper price point, etc. However, if that requires new cap-ex/op-ex to implement, then there has to be a business case to do so.
Also, margins per customer can be really, really important. If you are trying to do a mass market, consumer service with tight margins with the goal of making a profit through volume, you are extremely subject to market prices. (I.e. in an extreme case, if the profit margin per customer is only $1 per customer, with a million customers, then that would be $1 million per month in profit. If anything happens which either raises the cost of business per user by $2, or competitor prices forces the rate down by a $2, then that suddenly becomes $1 million per month loss.) High volume, low margin == volatile. (Or, growing too fast by reducing margins to cover the cost of growth, then getting hit by price pressure/cost changes => business implosion.)
(If the growth is into a 'new market', there may be additional risks/costs that have to be factored in that may not have anything directly to do with the network, either, but that's another issue.)
(Of course, at a certain size, there's always something going wrong *somewhere*. A colocation flooded because of a hurricane. A landlord deciding to remodel a building and giving six months notice that all of the equipment/lines running into the colocation has to be gone. Etc.)
So, I am pretty confident in the original statement that there are certain pressures, capitalism-wise, to be only as large and as fast as necessary -- i.e. the optimum size that produces the most profit for the least risk. These can be beat (successfully) but not always easily. Screwing up growth can be a disaster. If there isn't a clear solution to growing the network *profitably*, then the company won't (and probably shouldn't.)
Mergers are not necessarily 'growing' the network. When the mergers allow the resulting company to lay people off (i.e. sales, etc.) while still maintaining the same customer base on the same networks (i.e. no network investment growth), then the mergers are not 'growing' anything and are in fact improving their margins by laying off people. (Though sometimes the companies claim that their new, more profitable selves can now invest more in the networks.