OK, I'll bite ...
"Should they be combined internally into a single function encompassing the physical network management, application and service monitoring and management"
Yes. I've been doing it this way for decades. It works. If you have IT management with a clue, and traditional management which understands IT management.
"perhaps coupled with some form of variable service charging?"
No. People who need high-end kit are provided it. It's all overhead, from the bog-roll in the loos to free access to the mainframe. Anyone suggesting otherwise is playing political games instead of managing corporate resources.
"Are things best managed internally?"
Absolutely. It's not rocket science, and the risk of allowing an outside provider to manage internal data far outweigh the cost of managing it internally.
"Should some elements be passed onto managed service suppliers or moved to an outsourced network supplier?"
Absolutely not. Daft idea. I'd instantly fire anyone seriously suggesting it, because they are (in my mind, and in their contract) completely clueless about such matters.
"Or is the best approach to leave everything alone until a catastrophic service event forces a rethink?"
If your company is capable of having a "catastrophic service event", I respectfully submit that your IT management+staff are either underfunded, or in need of replacement.
Not that I know anything, mind ...