A normal telnet connection will be assumed to be something VT100-ish, so it won't try to use EBCDIC. If you send one of a few specific values for the terminal type, though, the AS/400 will use block-oriented EBCDIC comms. This is even documented in RFCs 1205 and 4777.

A bigger issue can be with trying to send each of the 24 function keys when a VT102 didn't have any.