Huatai Securities: The VAT adjustment for the three major telecommunications operators may have a profit impact lower than the direct estimate

Huatai Securities Research Report states that on February 1, 2026, the three major telecommunications operators announced that starting from January 1, 2026, the business activities involving fixed-line, mobile, satellite, and internet services—such as mobile data services, SMS and MMS services, and internet broadband access—will have their tax category adjusted from Value-Added Telecommunication Services to Basic Telecommunication Services. Correspondingly, the VAT rate will be increased from 6% to 9%. Huatai Securities believes that although this tax category adjustment will have a short-term impact on the company’s revenue and profits, on one hand, operators are actively promoting technological transformation and upgrades including computing power services and intelligent services, which is expected to further optimize the revenue structure; on the other hand, with the popularization of AI operations and maintenance, costs and expenses are expected to continue declining. In summary, Huatai Securities believes that the ultimate profit impact on operators may be lower than the direct estimated value.

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Huatai | Communications: How to View the Impact of the Operator VAT Adjustment?

On February 1, 2026, the three major telecommunications operators announced that starting from January 1, 2026, the business activities involving fixed-line, mobile, satellite, and internet services—such as mobile data services, SMS and MMS services, and internet broadband access—will have their tax category adjusted from Value-Added Telecommunication Services to Basic Telecommunication Services. The corresponding VAT rate will be increased from 6% to 9%. We believe that although this tax category adjustment will impact the company’s short-term revenue and profits: 1) on one hand, operators are actively promoting technological transformation and upgrades including computing power services and intelligent services, which is expected to further optimize the revenue structure; 2) on the other hand, with the popularization of AI operations and maintenance, costs and expenses are expected to continue declining. In summary, we believe that the final profit impact on operators may be lower than the direct estimated value.

Key Points

Revenue Side: We estimate that the impact of the VAT adjustment on total revenue is approximately 1.3%-1.4%.

According to the Ministry of Finance’s “Announcement on the Specific Scope of VAT Taxation,” the businesses affected by the VAT category adjustment mainly include “SMS and MMS services,” “Mobile data services,” and “Internet broadband access services.” We estimate the proportion of these businesses involved in VAT adjustments for China Mobile, China Telecom, and China Unicom relative to their total revenue, and assuming the tax-inclusive price remains unchanged, the VAT rate change from 6% to 9% will reduce the pre-tax income from these services by about 2.75%. Under unchanged other conditions, the overall revenue impact on China Mobile, China Telecom, and China Unicom is estimated to be approximately 1.3%-1.4%.

Profit Side: Multiple optimization measures can be adopted, and the final impact may be lower than the direct estimate.

If we perform a linear projection, we have estimated the absolute impact on the 2026 revenue of China Mobile, China Telecom, and China Unicom, as well as their proportion of total profits (2026E). However, we believe the actual profit impact on these operators may be lower than these direct estimates. The main reasons are: 1) this is not the first time the telecom service industry has experienced a tax rate adjustment; in 2014, the telecom industry also faced a “business tax to VAT” policy change, and the final profit impact was less than 10%, lower than the previous estimate of 18%-30%; 2) telecom operators are accelerating their transformation into technology companies, with emerging businesses such as IDC, computing power services, and big data increasing their revenue share, which may mitigate the impact of VAT in the long term; 3) AI-driven network operations and maintenance process optimization can further reduce costs and expenses; 4) telecom operators are expected to partially offset the impact of VAT through improved pricing mechanisms, marketing models, and package designs.

Investment Conclusion

Overall, we believe that although the VAT category adjustment will cause some short-term effects on the performance of these companies, the profitability and cash flow stability of telecom operators, as well as their attractive dividend prospects, remain intact. Their digital business is expected to benefit from the long-term growth of the domestic AI application industry, and the fundamental logic remains unchanged. They continue to be scarce investment assets with both dividend and technological attributes.

Risk Tips: ARPU improvement slower than expected; 5G capital expenditure higher than expected; increasing competition.

(Source: People’s Financial News)