O2 will 'be more dog' but guess who foots bill?

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As they say in the City, the share price never lies.

So why was it that, as Vodafone yesterday faced the prospect of becoming the smallest mobile operator in the UK following the “o23” deal, its shares actually rose?

Some put it down to the prospect of “merger mania” – that now O2 has lived up to its tough-guy “be more dog” ad slogan, Vodafone would have to do a deal with US tycoon John Malone’s Liberty Media.

But a Liberty transaction would be complex in the extreme and not offer Vodafone much in the way of benefits.

As the BESI bank analyst Andrew Hogley put it: “Why pay a premium to buy mobile operations in a load of countries where it has no presence and therefore no synergies?”

No, the reason Vodafone’s shares jumped in those first few minutes of stock market trading was simply this: competition will be lessened and customers’ bills will go up.

Never mind that Vodafone risks looking like an also-ran in the telecoms world. With the punters paying more for their calls and communications, profits will flow in anyway.

British competition regulators will be concerned, of course. Ofcom has tried to keep the UK supplied with four mobile companies.

But this deal is so multinational that Europe will be the judge, and precedent there suggests it will get the nod. The new company may have to share some of its network with newcomers (Sky Mobile, anyone?), but make no mistake, UK competition is set for a cull.

O2 and Three will argue that they would be able to invest in building far better network coverage if the overcrowded industry wasn’t having constant price wars.

They’ll point out that in Europe there are 100 networks for 550 million people. In the US, it’s four operators for 350 million. The result, they’ll say, is that Americans pay a little more, but enjoy the fruits of bigger investment from the operators.

It’s just a happy side effect, of course, that the companies there make more money.