Microsoft (with their OfficeLive beta offering) and Google (with GoogleApps) are in the early stages of targeting the small and medium business (SMB) market with hosted applications delivered via a software-as-a-service (SaaS) model.
Both of the these giant companies have a voracious appetite for growth (see The Innovator's Dilemma), and both companies are planning for their applications to get a 'free ride' on broadband networks owned and operated by incumbent Telco service providers. Further, neither Microsoft nor Google is strategically motivated to create a compelling SaaS resale opportunity for the incumbent Telco channel.
With billions of dollars in resources, massive numbers of existing SMB billing relationships, and powerful brands trusted by millions of small businesses, the incumbent Telcos are guaranteed to fight aggressively to control their share of the market for SMB SaaS subscriptions.
With what and how are the Telcos going to fight? With their core assets, brand and customer relationships. The how is for future entries.