VMO2 brings in £186 million from another Cornerstone stake sale

The announcement comes a year after the UK telco last sold off a chunk of Cornerstone. This time last year it inked a similar deal with GLIL Infrastructure, agreeing to part with a 16.67% stake for £360 million.

That deal was about monetising passive infrastructure assets while at the same time allowing the telco to stay in the towers market. And this time around its motivation is exactly the same.

"This additional minority stake sale follows the same logic and strategic rationale as our previous deal, allowing us to successfully monetise our infrastructure while retaining a controlling share in an important asset," said Virgin Media O2 CEO Lutz Schüler, in a canned statement.

"Equitix is another strong partner to have onboard that clearly sees the long-term value in Cornerstone at a time when we are investing billions of pounds to enhance 4G coverage and bring 5G to new areas of the country," Schüler said.

Rolling out mobile networks is indeed an expensive business; VMO2's domestic rivals Vodafone and Three UK have reminded us of that ad infinitum in recent months as they seek to gain regulatory approval for their merger plan. And selling off more of Cornerstone follows a broader industry of operators doing just that with their towers businesses to free up more cash to plough into networks.

While some have pulled out of the passive infrastructure business entirely, VMO2 sits in the camp of operators keen to bring in some money, while also staying in the towers game.

Under the terms of the deal, VMO2 will sell a 16.66% stake in the holding company for its half of Cornerstone, which is, lest we forget, a joint venture the telco set up with Vodafone more than a decade ago. It will be left with a 25.01% stake in Cornerstone, the other 25% – less 0.01 percentage points – being split two thirds/one third between GLIL and Equitix. Vodafone's 50% stake is held by its Vantage Towers business.

That's assuming the deal gets over the line, of course. VMO2 noted that it is "subject to the finalisation of certain conditions," but did not elaborate. Nor did it share an expected completion date. That said, there's no reason to believe a deal of this type, now pretty standard in this industry, would face any serious roadblock.

Virgin Media O2's latest quarterly financial results, also published on Wednesday, help to illustrate why telecoms operators have been releasing cash from their towers.

Its numbers for the three months to the end of September show a 2.4% decline in revenue to £2.7 billion – the decline was even steeper excluding the impact of the telco's nexfibre build – mainly due to mobile weakness. Mobile revenue was down by 4.2% to £1.4 billion, which admittedly represented an improvement in momentum on the previous quarter. Nonetheless, mobile customer numbers slid by almost 75,000 during the quarter to 45.4 million.

The picture was brighter on the fixed side. The telco's fixed consumer business, which accounts for the bulk of fixed turnover, saw revenue grow by 2.5% on-year to almost £860 million, backed by a 2.2% increase in ARPU. VMO2 also reported a return to fixed-line customer growth, recording 15,000 net additions during the quarter to take the total to 5.8 million, and highlighted accelerated growth in the expansion of its nexfibre footprint.

"Our 5G and fibre rollout continues at pace, and we have invested more than £1.5 billion so far this year as we focus on delivering a great customer experience with fast, reliable connectivity in more areas, increased loyalty benefits and improvements in our customer service performance," Schüler said.

"In the first nine months we are tracking well against EBITDA guidance, enabling us to reiterate all guidance metrics with confidence, as we keep our foot on the gas with targeted investments in the salient final quarter," he added.

Essentially, that £186 million cash injection from Cornerstone can only be a good thing, with VMO2's investment outflow still pretty high.