Goldman Sachs has issued a research report stating that Chinese telecom operators have recently launched AI token packages for both individual (ToC) and enterprise (ToB) users, charging via subscription fees or token consumption. The firm is optimistic about the incremental revenue from these AI token packages, forecasting that the expansion of use cases such as office AI agents, OpenClaw, and AI coding will help drive average revenue per user (ARPU). However, it will take time for the increased penetration of AI tokens to translate into significant revenue. Concurrently, the sluggish pace of 5G base station deployment and a higher value-added tax (VAT) rate are expected to place substantial pressure on the future expansion and growth of Chinese telecom companies. Consequently, the firm has downgraded the investment ratings for China Telecom (00728), China Unicom (00762), and China Tower (00788) from "Neutral" to "Sell" across the board. The report adds that a more positive stance would only be adopted if an acceleration in the adoption of AI token solutions is observed or if more high-quality enterprise-level AI projects are implemented.
The report notes that China deployed 51,000 5G base stations in April 2026, bringing the total new additions for the first four months of 2026 to 171,000, representing a year-on-year decline (compared to 188,000 in the first four months of 2025). With reduced capital expenditure on 5G infrastructure domestically, Goldman Sachs forecasts 540,000 new 5G base stations for the full year 2026, below the 588,000 level announced by the Ministry of Industry and Information Technology for 2025. Beyond the slowdown in 5G base station deployment, the VAT rate increase from 6% to 9% effective January 2026 also pressures Chinese telecom operators, although they are expected to partially offset this impact by developing new applications.
Analysis of Individual Companies
Regarding specific stocks, China Telecom has launched its AI token package, with monthly fees for individual users ranging from RMB 9.9 to RMB 49.9 and for enterprise users from RMB 39.9 to RMB 299.9. However, due to weak 5G service consumption, slowing base station deployment, and the higher VAT rate, Goldman Sachs has lowered its earnings forecasts for China Telecom for the 2026 to 2028 fiscal years by 13%, 25%, and 26%, respectively. The firm has also significantly reduced its 12-month target price from HK$6 to HK$4.2 and downgraded the rating from "Neutral" to "Sell".
Despite reduced 5G infrastructure capital expenditure at China Unicom, blended user ARPU has exceeded RMB 100, and the company has launched programming initiatives and an AI Token plan to enhance user value retention. However, revenue and net profit for the first quarter of this year fell by 0.5% and 17.6% year-on-year, respectively, which the firm attributes to weak growth in mobile services. The report notes that Unicom continues to upgrade AI services and expand connectivity scenarios to offset industry weakness, but near-term pressures persist. Goldman Sachs has cut its earnings forecasts for Unicom for 2026-2028 by 17%, 23%, and 39%, primarily reflecting weak mobile service revenue and the VAT rate hike. Gross margin forecasts remain largely unchanged, but the operating expense ratio forecast has been raised to account for new product R&D investment and the time needed for efficiency gains. The target price has been lowered from HK$8.8 to HK$6, with the rating downgraded from "Neutral" to "Sell", implying a 9% downside from the current price. The firm's 2026/27 earnings forecasts are 5% and 4% below market consensus, mainly due to lowered revenue forecasts and increased forecasts for AI investment and operating expenses.
China Tower is expanding into innovative businesses like smart towers and energy, with the telecom service provider (TSP) business expected to remain stable amid slowing 5G capital expenditure and declining lease fees. 6G offers long-term potential upside, but standard setting and commercialization of end-user applications will take time. The company is committed to cost control, but rising maintenance costs for tower assets are pressuring short-term margins. The firm has lowered its earnings forecasts for China Tower for 2026/27 by 14% and 13% and introduced a 2028 forecast, primarily due to reduced TSP business revenue from weak 5G infrastructure and lower lease fees, alongside a raised operating expense ratio forecast due to a smaller revenue scale. The valuation methodology has also been changed from discounted cash flow (DCF) to a short-term EV/EBITDA approach consistent with industry coverage to capture earnings growth and exclude depreciation and amortization effects. The target price has been significantly reduced from HK$13.14 to HK$8.1, with the rating downgraded from "Neutral" to "Sell". The firm's 2026/27 earnings forecasts are 3% below market consensus, mainly reflecting slower-than-expected tower construction and weak 5G expenditure.
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