A possible approach:
1). Tell your employees the hard line - you need to stay in business, you are losing money.
2). You know Facebook, YouTube, Twitter, even Web Texts are eating into work time.
3). Employees need to stop using these services, except on designated work breaks.
4). If productivity doesn't improve, first evaluate if it IS actually poor, or if it's just your perception, if it isn't actually poor in comparison with before, etc leave it.
5). If productivity has dropped, and continues to drop, ask your employees again (second formal warning) and say you will need to get net nanny style software.
6). If issues are still occuring, block employees from using these sites / their mobiles - but this really should be a last resort...