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Friday, June 21, 2024

The Sketchy Plan to Build a Russian Android Phone

Since the invasion of Ukraine one year ago, Russia has faced an exodus of tech companies and services. This includes the exit of Samsung and Apple, two of the world’s most popular smartphone brands. In response, the country has doubled down on its efforts to attain technological self-sufficiency, including creating a new Android smartphone.

The handset, which does not yet have a name, will be built by the National Computer Corporation (NCC), one of Russia’s largest IT companies, with an ambitious goal to sell 100,000 smartphones and tablets by the end of 2023. Alexander Kalinin, the founder of NCC, told local media on Monday that he aims to invest 10 billion rubles ($132.9 million) in the project and hopes to capture 10 percent of the consumer market by 2026.

The news comes just days after the US Department of Commerce banned exports to Russia of phones and other electronics that cost more than $300. Experts say, however, that a Russian smartphone will have a hard time beating inexpensive competitors from China, and it may encounter problems with using Google’s Android.

“I think that while the phones might be Android to begin with, Google might not allow the full license in the near term,” says Jan Stryjak, associate director at Counterpoint Research, an industry analysis firm. “The phones might need to switch to another OS.”

Google no longer offers paid apps, or updates for those apps, to Russian users. But it has stopped short of preventing people in Russia from using its free services, such as Gmail, Maps, Play, and YouTube. Google did not immediately respond to WIRED’s request for comment about Russian companies using Android.

The new smartphone project is just one of many of Russia’s attempts at technological self-sufficiency and digital sovereignty. The country has promised “unprecedented” amounts of funding to develop its electronics industry, which is tempting Russian firms. But not everyone is convinced that government subsidies will result in new products—or whether products like NCC’s phone will succeed.

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“Honestly, as far as my knowledge goes, it looks like a PR stunt,” Karen Kazaryan, general director and founder of the Internet Research Institute, says of NCC’s smartphone project.

At its core, this digital sovereignty means state control over the internet within its borders, including content, data, and infrastructure, allowing the government to wall off the country’s online sphere from the rest of the world. The Russian government started promoting the idea after the sanctions that followed its annexation of Crimea in 2014. 

In some ways, Russia’s efforts have been successful. After Instagram, Facebook, and Twitter were blocked in the country, some Russian users switched to domestic social media, particularly to VKontakte, the Russian version of Facebook. Russian companies, both state-owned and private, have also been trying to lure Russians from TikTok, Instagram, and YouTube to homemade variants such as Yappy, Rossgram, and RuTube. Many of these platforms, however, have attracted criticism for outdated designs, lack of users, or too much state propaganda.

Another project that received much fanfare was the domestic RuStore app store launched in May of last year by VKontakte and the Russian Ministry of Digital Development to replace Google Play and Apple’s App Store. The store has more than 10 million users, according to VKontakte.

The fresh wave of sanctions after the invasion of Ukraine has given new wind to the concept of technological self-sufficiency, with Russia’s government launching multiple initiatives to create domestic substitutes for foreign electronics, online platforms, and software, on which many Russian companies are dependent.

Over a thousand tech companies stopped or curtailed their operations in Russia after the invasion of Ukraine. In just a month, Cisco, SAP, Oracle, IBM, TSMC, Nokia, and Ericsson, as well as Samsung and Apple, left the market, affecting entire industries, including mobile operators, factories, startups, and large state-owned companies. According to IDC, a global market-analysis firm, the Russian IT market in 2022 shrank by $12.1 billion, or 39 percent.

Russian prime minister Mikhail Mishustin said in February that Russia wants to replace 85 percent of foreign software with Russian substitutes, opening dozens of so-called import substitution centers. Among them is a project to create a national operating system for devices. The plan, however, is at an early stage with no road map in sight, says the Internet Research Institute’s Kazaryan.

“Currently, a few big players are trying to woo the government for subsidies to create devices on ‘national mobile OS,’ whatever that might be,” he says.

One of the more promising alternatives to Android is Aurora OS, a Linux-based smartphone operating system made by the Russian state-owned telecommunications firm Rostelecom. But Aurora was primarily made for government use and does not support Android apps. In December, the Russian government refused to allocate any of the 22 billion rubles ($292.1 million) earmarked for the development of the Russian operating system.

Other Russian smartphone makers, such as BQ, have promised to adapt Huawei’s HarmonyOS for its handsets. But there's been no news of progress since BQ’s announcement in September. Huawei, which is based in China, developed its own operating system in 2019 after Google stopped providing its suite of mobile software services to the company because of US trade sanctions. The Chinese IT giant has said it has no plans to launch HarmonyOS-equipped mobile phones outside of China.

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Huawei’s struggle to compete outside China shows that it’s hard for a smartphone brand to gain buyers without access to Google services. Huawei lost almost a third of its revenue in 2020, the year after sanctions cut its access to Google Maps, Gmail, and other common Google apps. The biggest hurdle NCC’s new smartphone may face, however, is cheap and readily available phones from China. 

Counterpoint’s data shows that phones from Xiaomi, Realme, and Honor, a budget brand previously owned by Huawei, have replaced once best-selling iPhones and Samsung Galaxy devices, accounting for 95 percent of the market last year.

“There's still a lot of competition,” says Counterpoint’s Stryjak. “I don't think there's a huge gap in the market for a new player.”

Other Russian phones, most famously Yotaphone, have tried to capture the domestic market, but they remained at a very small scale, says Stryjak. Russians prefer brands they already know. Thanks to parallel trading—importing goods without the permission of the manufacturer—even Samsungs and iPhones are still available in the country. NCC says it aims to price its smartphones between 10,000 and 30,000 rubles ($132 and $398). 

“We are considering various options. This could be production at Russian factories or contract manufacturing at Chinese enterprises,” NCC’s Kalinin told local media. NCC did not respond to WIRED’s request for comment.

Other Russian smartphone makers such as Smartekosistema, owned by state giant Rostec, have found that they were unable to procure the necessary chips from TSMC for the second iteration of their handset, the AYYA T2. All of this may make creating Russian challengers to Samsung or Apple very expensive.

“You probably can make a smartphone in Russia with Chinese parts, but it's not very efficient,” says Kazaryan. “And why would anyone buy a Russian phone that is more expensive than Xiaomi?”

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