Recently, in the space of three weeks time, a 10-month-old Internet start-up raised more than $10 billion in debt and acquired a 129-year-old telecoms company valued at almost $40 billion. The Pacific Century CyberWorks acquisition of Cable & Wireless HKT should serve as a long overdue wake-up call to Asia's telco management teams and their government shareholders. While the past three years have seen a global bull market in telecoms shares — with global telecom indices up more than 200% since January 1997 and wireless indices up more than 500% — most Asian incumbent telco shares have flat-lined.

The key lesson from the HKT take-over is that Asia's incumbent telcos must implement radical strategic and structural change to drive real value creation for shareholders and consumers. This involves breaking incumbents into a series of smaller pieces to provide focus and stimulate growth. A good start would be forming at least three distinct pieces — a fixed telephony player, a mobile operator and an Internet service provider. This structural separation will provide increased operational focus to each entity and help drive the necessary change in incumbent culture, provide increased competitive choice for consumers and increase market transparency of the value imbedded in incumbents.

The most successful high-growth telco companies are those with an intense focus on winning in their core business. While fixed, mobile and ISP businesses can potentially share some synergies in brand and in some cases shared assets, the operational imperatives and cultures of the three businesses are significantly different. In most cases the diseconomies of combining these businesses outweigh the potential synergies.

At the core of all incumbents is the former monopoly fixed telephony business. But to succeed in the fastest growing new adjacent markets of mobile, Internet and data services, competitors must operate at a pace of decision making and execution that is unfamiliar to the traditional fixed line business. In these new markets, pricing packages change daily, new products and channels are introduced monthly and network elements are swapped out every couple of years. Most incumbents have been unable to operate at this pace. As a result, they risk slowing growth of their operations in these key areas.

In addition, the major operational challenges of these businesses are dramatically different. The traditional fixed telephony part of the incumbent needs to be focused on improving operational efficiency and dramatically reducing unit costs in the face of the rapidly declining retail voice price point. This will ultimately involve removing more than half the central office switching centers, shifting customer service channels, and reducing staff by 30% to 50%. This is a very competitive mature business. As such, it requires a very specific set of metrics and management culture.

In contrast, the mobile and ISP businesses are still only midway through the growth phase of their lifecycle. Here the operational imperatives are dramatically different. Mobile operators and ISPs must focus on maximizing share gain in these annuity businesses during this growth phase. Consumer sales and marketing are the most critical skills at this point, not cost-focused operational efficiency.

It is not impossible, but it is difficult to manage several dramatically different cultures simultaneously within one company. Failing to do so results in the least common denominator approach — you neither reduce costs enough in the fixed business nor do you invest enough in the growth businesses. In addition, the larger margins on the mobile business conceal for too long the falling margins in the fixed business, inducing a delay in the application of the hard medicine to the fixed business.

Incumbents are also facing increasingly legitimate regulatory concerns about their degree of market dominance across their wide range of businesses. For example, Australian incumbent Telstra was recently barred by the Australian Competition and Consumer Commission from a planned acquisition by its Big Pond ISP of the number two national ISP OzEmail. A stand-alone Big Pond would have probably posed less regulatory concerns, as it would not own 98% of the fixed access lines or be the market-leading mobile operator.

By the same token, an independent SingNet ISP would also remove the often acrimonious competitor complaints about potential cross subsidies in Singapore's telco market. Separating off an incumbent's competitive ISP from the local monopoly fixed-line business would remove these legitimate regulatory concerns. This would enable the ISP pure play to pursue a much more aggressive strategy to establish the clear domestic leadership position that AOL has in the American ISP market.

Similarly, there are increasing competitive conflicts between the incumbent fixed line and mobile businesses. Driving a mobile business to full potential increasingly involves encouraging mobile substitution for fixed voice. This drives traffic off the fixed network and onto the mobile network. It is no surprise that the most aggressive mobile operators in this regard are new entrants, not incumbent owned mobile operators. As with the break up of AT&T into Lucent, AT&T and NCR, shareholders are likely to be well served by pure plays freed of regulatory and competitive constraints.

Capital markets are looking for incumbent telcos and management teams that view their collection of assets as distinctly different businesses and can tell a compelling story about how they are directing and managing them differently, even if they are not separately floated. The market is ruthless if the reverse is true.

Last week Telstra CEO Ziggy Switkowski announced the largest half-year profit figure in Australian corporate history. Simultaneously, he announced 16,300 planned redundancies. Rather than applauding this exception performance and aggressive focus on increased operational improvement, the market pounded Telstra's shares within hours of the announcement. Analysts declared the root cause was that he did not articulate a clear strategy for Telstra's growth businesses and killed market rumors Telstra was about to list part of its Internet businesses.

In contrast, Telstra rival Cable & Wireless Optus has outperformed the market, doubling its share price since mid last year when CEO Chris Anderson announced a major restructuring of the company into three focused operational business units — Optus Mobile, Data & Business Services, and Consumer & Multimedia. The restructuring has increased the transparency to the market of the performance of the core businesses. It has also apparently accelerated growth in these businesses, particularly in mobile where Optus continues to gain shares against Telstra MobileNet. Mobile operator NTT DoCoMo in Japan has seen even more dramatic growth since its partial spin off from parent NTT.

The HKT take-over is a clear warning to Asia's telco incumbents and their shareholders. Former monopoly telco management teams can no longer pursue the strategies and business models of the past. If they don't have a clear plan to double their share price every year or so, shareholders — including government treasury departments — will begin to abandon ship. As Asian capital markets become more sophisticated and shareholders more demanding, the age of the incumbent telecoms conglomerate is coming to a close.

Mr. Garstka is a vice president with Bain & Company in Singapore.