Here is an interesting analysts report from Bears Stern that argues structural separation will unlock value and provide the best return for telcos. The argument is similar to that recently made by Bernstein Research for the cable companies. They both argue there is little hope that the telcos and cablecos will be able to compete on services and applications given the incredible innovation, global market and financial resources available to companies like Google, Joost, Microsoft, Amazon, etc
Both reports argue that telcos and cablecos should unlock the value of their last mile assets through structural separation and focus on a solid regulated return, rather than trying to compete in the highly dynamic application and service space. More importantly the entire business model for the application/service industry is changing from fee for service to other modalities such as advertiser driven, which work well with large global markets, but are not practical on the small physical footprint of the outside plant.
The biggest challenge for telcos is that the cablecos have a far superior outside plant in terms of bandwidth and lower opex. The telcos have to move to providing raw fiber connectivity to customers with new business models if they hope to compete with cablecos, as for example with Green Broadband. Thanks to Dirk van de Woude for this pointer-- BSA]
Bernstein report for cablecos
http://www.bernsteinresearch.com/
Bear Sterns report for telcos www.ccc.asn.au/files/pressrelease/paper_17.pdf
Green Broadband http://www.canarie.ca/canet4/library/recent/Canadian_Heritage_Jan29_2007.ppt