Russia's 2023 Tech Challenges, According to Its State-Owned Telecom
Russian state-owned telecom and digital services giant Rostelecom recently presented on Russia's top technology challenges for 2023. Here's what it said.
Russia is feeling the effects of Western sanctions and major geopolitical shifts in technology — including many businesses exiting the Russian market and terminating their relationships with Russian companies. At the end of January, Russia’s state-owned telecommunications provider gave a presentation about some of the biggest challenges for Russia’s tech sector in 2023. Here’s what the executive said, along with analysis of the presentation and the issues. Brought to you by Global Cyber Strategies, a Washington, DC-based research and advisory firm.
The One-Liner
Russian state-owned telecom and digital services giant Rostelecom highlighted import substitution, cybersecurity threats, financial challenges, and staffing/talent problems as some of the biggest issues for Russia’s tech sector in 2023.
Russia’s 2023 Tech Challenges
At the end of January, as reported by Russian technology blog D-russia.ru, Rostelecom’s senior vice president for information technology spoke to reporters about challenges facing Russia’s technology sector in the context of sanctions.
He named the following four categories of challenges:
Import substitution in light of sanctions — including the Ministry of Digital Development’s measures to move Russia towards using domestic providers and the limited alternatives to non-Russian technology available
Information security — including the risk of cyber attacks leading to service shutdowns and data theft, restrictions on using foreign funding, threats from foreign software and hardware vendors, and new digital services requirements
Financial challenges — including sanctions challenges, difficulties in justifying investments in technology, and volatility in the value and timing of tech purchases
Staffing/talent — including the “brain drain” of talented Russian tech professionals leaving the country, larger companies’ struggles with tech personnel, difficulties in talent recruitment, and salary competition issues
These mentions are noteworthy for several reasons.
Import substitution in light of sanctions — Rostelecom is correct this will remain a huge challenge for Russian companies. In some areas, the Russian government’s push has been somewhat successful in replacing Western technology with Russian technology. For example, the Astra Linux operating system’s use has been growing in Russia, receiving the necessary certifications a few years ago for use on sensitive government systems, and has frequently been used to replace Microsoft Windows. Recently, its CEO has been explicit about Astra Linux’s plans to become a full “technology stack” solution. In other places, import substitution, as it’s often called in Russia, has been a huge challenge, such as with computing hardware. Russian companies’ ability to produce domestic technology — and the state’s ability to illicitly acquire tech from the West — will heavily impact its tech sector’s capabilities and global market reach. It’s also important to remember Rostelecom has self-serving reasons to mention this issue, too; as a state-owned entity, its executives are undoubtedly looking to increase revenue at home by leaning into the Kremlin’s domestic tech focus.
Information security — This is an unsurprising mention, but it’s interesting. In the West, “information security” is often used synonymously with “cybersecurity,” referring generally to the confidentiality, integrity, and availability of systems, networks, and data. To the Russian government, however, “information security” is much broader, encompassing the likes of encryption and firewalls but also including the state’s control, broadly, over information and the internet. This mention could mean that Rostelecom is both catering to senior Russian officials and articulating a genuine interest in supporting the Kremlin’s online surveillance, content censorship and manipulation, and repression efforts. However, many of the discussed items on “information security” referred to cybersecurity threats and cyber operations as the West would define them, not necessarily alluding to content-focused issues (like state censorship). It suggests that Rostelecom is also quite concerned about cybersecurity risks — and that it buys into both paranoia and recognizable concerns about non-Russian technology.
Financial challenges — Western sanctions and the global responses to the Putin regime’s illegal war on Ukraine have significantly challenged Russia’s technology sector. Among other factors, Russia’s economy broadly is dependent on high-tech imports; many Western businesses have ended their relationships with Russian tech firms; many Western tech firms specifically have done the same; Russian companies cannot produce computing and other hardware in a way that adequately replaces Western or Western-linked alternatives; and there is great uncertainty about foreign markets trusting Russian technology. Rostelecom’s mention of pricing and market volatility is nothing new, although its reference to a difficulty in justifying tech investments suggests its leadership is noticing Russian companies limiting their expenditures.
Staffing/talent — The “brain drain” of talent from Russia — where tech-talented people leave Russia for a variety of reasons, most often strongly driven by a desire for far higher pay and a less repressive political environment — accelerated since February 2022. It has long been a problem in Putin’s Russia and was also a problem before Putin’s rule, following the collapse of the Soviet Union. But it has been devastating in the past year for tech talent: Russia’s Ministry of Digital Development reportedly estimates that at least 100,000 IT workers, or approximately 10% of Russian IT company employees, left the country in 2022. While plenty of Russian technology companies have employees in Russia’s “near abroad,” sanctions are creating some barriers; and even if Moscow can illicitly procure technology, convincing (or compelling) tech-skilled workers to stay in the country is another matter entirely. Tax incentives and military draft exclusion for IT workers in the country may have encouraged some people to stay. Nonetheless, brain drain is very likely to remain a persistent problem for Russia. Many Russians, including tech workers, are in incredibly difficult positions all the while.
Other Points of Note
The Rostelecom executive, per D-Russia.ru, said it is important for Russia to develop a national ecosystem of mobile technology, from operating systems to apps to online stores. This statement fits within the Kremlin’s broader domestic technology push, and it is expected that Russian businesses are discussing how to fill voids left by Western tech departures and expulsions.
Rostelecom is also looking to grow. Kommersant reported on January 30 that it is in the middle of negotiations to buy MegaFon, one of Russia’s major telecom operators, from its parent USM, which is owned by oligarch Alisher Usmanov. (Interestingly, Usmanov was the one who stepped in to buy control of Russian social media network VK — then, VKontakte — in 2014 when its founder Pavel Durov was forced out following a conflict with the Kremlin. Usmanov sold that stake in VK to a state-owned enterprise in December 2021.) MegaFon is the second-largest mobile services provider in the country, after MTS. This would be a major acquisition for Rostelecom, and a major consolidation move in the Russian communications services market.
Want insights on what Russia’s cybersecurity sector in particular thinks about Western sanctions, growing technological isolation, and Putin’s domestic tech push? Check out a previous post analyzing a major 2022 Russian cybersecurity conference.
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