Citi from "The Big Banks": Expects VAT adjustments to have a potential impact of about 3% on the service revenue of the three major telecom operators

Citigroup's research report indicates that China Mobile (00941.HK), China Telecom (00728.HK), and China Unicom (00762.HK) announced that starting from January 1, 2026, the tax category applicable to "value-added telecommunications services" will be adjusted. The affected services include mobile data traffic services, SMS, multimedia messaging services, and internet broadband connection services using wired networks, mobile networks, satellites, or the internet. These services will be reclassified as basic telecommunications services, and the applicable value-added tax rate will be raised from 6% to 9%.

Citigroup believes that considering market competition and stable demand, operators are unlikely to pass the increased tax burden onto consumers by adjusting data traffic pricing plans. Therefore, this adjustment may have a potential impact of about 3% on their service revenue (which accounts for a large portion of total revenue).

Citigroup believes that if service revenue declines as a result, it may produce some degree of deleveraging effect. However, these companies still need to meet key performance indicators for state-owned enterprises by the end of the year.

Citigroup considers it too early to draw conclusions about the potential impact on dividend distribution, expecting to gain more information from the financial reports to be released in March