value of co-location

This all is probably true if the objective is to provide the best
possible IP service. If you apply other requirements, like integration
of the current telephony system, or, more accurately, evolve the
telephony system, in the telephony company mindset, to something that
also supports data, video, and things like that, things look
different. Then again, so far I see little activity in the context of
service integration. More ATM as a level-2 replacement for data
networking. Which brings us back to your comments, as in such an
environment the benefit is more marginal (e.g., ATM may still have
multiple service qualities before it is being implemented in an IP(+)
substrate). Oh well. If there were just concerted goals.