The telecoms industry is facing a fundamental challenge. It all boils down to a deceptively simple choice: do you focus on customers and services, or networks and technology?
Doing both presents a mix of technology, implementation, operational and marketing challenges too great for any business to remain competitive in today's markets. The most established telecoms companies are struggling to deliver earnings growth and advance shareholder value. So why hasn't anyone taken the plunge yet? At what point will it be too late to decide which way to go?
There are encouraging signs that companies are starting to think along the right lines. However, it's not easy to separate the service provider function from the network operations part of the business. Most telecoms companies have grown up doing both as a central part of their business. So why can't this carry on delivering value for the company's shareholders? The weakness is rooted in the two opposing economic forces working on the different parts of the business - scale and scope.
For an operator to get a good return on its network, it needs to build for scale - huge volumes of traffic and small margins. For a service provider to get a good return from its customers, it needs to focus on scope - getting £500 per customer annually from two million customers, rather than £10 per customer per year from 100 million people. The result is the same, but the effort required is quite different.
This uneasy dynamic can exist in an uncompetitive market, but a new breed of pure-play network operators and brand-led service providers is threatening to competitively undermine the old-world business model.
Looking to markets that have been through de-regulation like the banking and utilities industries, we can build a picture of how the telecoms market is likely to mature. It is a very polarised picture.
No one does the equivalent of the network function as well as managing the customer relationship. The banking and utility industries are run through markets (in some cases even futures markets) that separate the provision, carrying and retailing functions.
The most successful players worked out where their strengths lay and divested all non-essential business to fuel the development of their core business. For example, British Gas split its operations and services divisions, from which Centrica was born.
Centrica embodies all the skills of a modern service provider - good customer and strong risk management and great procurement ability. A gas company leading the way in telecoms services provision? Never? Look again - they just might.
So how long can the telecoms companies hold their collective breath? Some have run out of air and others are starting to turn blue. It is time to begin the process of separating internal functions - even creating an internal market that can one day be externalised.
They need to understand where their competence lies and prepare to divest the rest. This is a painful prospect for operators that view their own network as the "crown jewels" despite the fact that running that network is burning a huge hole in the balance sheet.
The technology-wary public has seen the Internet lose its shine, Wap fail to take hold and 3G's launch flop. That hasn't helped the morale of the telecoms industry, but by contrast, the success of interactive TV is a real boost.
Interactive TV's acceptance by the public is forcing the rapid advancement of set-top box technology to deliver the cutting-edge storage and processing power dreamt of by providers looking to offer a converged voice, video and data package.
Fixed line and cable telecoms companies have a bright future selling TV delivery combined with broadband access capability. The temptation, however, will be to own the entire process of creating and delivering media, rather than focusing on being the best in part of that value chain.
So what can be done to revive this depressed market? Telecoms companies must ruthlessly attack their cost base and manage their debt burdens. We will undoubtedly see more merger and acquisition activity resulting in bigger integrated networks, open marketplaces for trading bandwidth and content and lifestyle-oriented service provision.
The Government has been obsessed with creating competition in the telecoms sector at the infrastructure level but the competition needs to shift to the service provision level. Then infrastructure sharing will be the next step in accelerating the pace of pervasive data access.
The future merger and sharing of infrastructure reinforces the need for clean separation of operational support systems from the business support systems within telecoms companies. Broadband Britain and 3G will depend on it.
Patrick Bossert is head of e-strategy of the content sector of KPMG Consulting