Will security concerns trump profit for the Kremlin in a debate over OneWeb?

The Bell

Hello! Our top story this week is the fascinating standoff over U.S.-led internet project OneWeb between state space agency Roscosmos and the security services, which tells us a lot about the interplay of money and the state. We also have stories on the decoupling of the ruble from the oil price, an astonishingly successful crowdfunding campaign that appears to have saved an independent media outlet, and the prospect of Russia officially boycotting next year’s World Economic Forum in Davos. Finally, read some of the best quotes from our interview with Daria Rebenok, a founder of Grabr recently featured in Forbes’ annual 30 Under 30 rating.

Will security concerns trump profit for the Kremlin in a debate over OneWeb?

A Soyuz rocket is supposed to launch the OneWeb satellites; this should bring at least $1 bn revenue to Roskosmos. Photo credit: Wikimedia Commons

What happened

The implementation of OneWeb, ex-Google executive Greg Wyler’s project to use a global satellite network to beam internet across the world, poses a difficult question for President Vladimir Putin. On the one hand, OneWeb means billion dollar contracts for the struggling state-owned space company, Roscosmos, but, on the other, the security services want to ban it because they fear the introduction of an independent domestic internet infrastructure.

  • OneWeb, which attracted $1.7 billion in investment from companies including Airbus, Coca-Cola and Virgin, plans to launch a network of 882 satellites to provide high quality internet and telecommunications across the globe. Roscosmos joined the project in 2015 when it created a joint venture with OneWeb in Russia. And OneWeb has already placed orders with Russian companies worth more than $1.3 billion to launch satellites and build rockets — the largest such commercial order in several years.
  • The Russian security services are not in favor. Currently, all internet equipment in Russia is based on SORM, a system that gives the security services access to user data. The Federal Security Service (FSB) said publicly last month that OneWeb is a threat to national security and its scope should be limited. Negotiations between Roscosmos and the FSB have already been underway for over a year and the discussion has involved Putin several times, but a final decision is not expected before December. Roscosmos might be expected to lose this battle, but the company has a powerful ally in the form of Igor Rotenberg, the son of Putin’s billionaire friend Arkady Rotenberg. Igor Rotenberg is reportedly co-owner of the company that owns the Russian JV with OneWeb.
  • The irony of all this is that OneWeb could actually operate in Russia without the FSB’s permission. The project needs above-ground receiving stations, but it could cover Russia via stations in the U.S., Kazakhstan, Italy and Norway. An FSB ban would just mean that Russia has no way of participating (and, therefore, controlling) the network’s operations, sources believed to be close to Roscosmos told Kommersant newspaper. They also cited the blow to Russia’s reputation as a reliable partner in the space business. “Elon Musk will definitely take advantage of this,” they said.

Why the world should care

Just few years ago, worldwide satellite internet, sounded like science fiction — but it is already close to reality. OneWeb’s story illustrates how authoritarian regimes are watching these sorts of projects, but have not been able to decide how to handle them.

Geopolitics — not the oil price — is now driving the ruble

What happened

Russia has had a good macroeconomic week: not only did it appear that new U.S. sanctions have been postponed, but the Russian government’s economic policies appeared to be working perfectly. A big fall in oil prices — which a few years ago would have caused immediate problems — had no impact. Not only did the ruble gain value but the Ministry of Finance was able to borrow funds on the market on the best terms in six weeks.

  • On Tuesday, the price of crude oil, Russia’s main export, fell by nearly 7% to $65.47 a barrel, an eight-month low. This was caused by fears over economic growth, OPEC’s announcement that demand for the fuel would slow next year, the U.S. reporting an increase in shale production and, finally, President Donald Trump’s tweet that “oil prices should be much lower”. In time honored fashion, analysts predicted that the ruble would drop when the market opened the following day.
  • However, the next morning, the ruble strengthened. Part of the reason for this was the news that the U.S. Congress will probably be too busy in the coming months to adopt new anti-Russian sanctions before the end of the year. All this demonstrated beautifully how the Russian currency has decoupled from the oil price and is now far more dependent on geopolitics.
  • In the context of the currency’s stability and the news about delayed sanctions, the Ministry of Finance was able to sell its full volume of government bonds for the first time in three weeks, raising more than $170 million.

Why the world should care

For many years, the price of oil has been the key to the Russian market. It was the major driver for the ruble and the Russian stock exchanges, which include the country’s major energy companies. But the events of the last few days show us again that sanctions are the new benchmark. If they want to understand the Russian market, investors should follow sanctions news as closely as they track the gyrations of the oil price.

Conflicting signals from Putin and Medvedev over Russia’s Davos boycott

What happened

In response to the decision to ban Russian tycoons under U.S. sanctions from the World Economic Forum in Davos, Russia has threatened to boycott the event. Prime Minister Dmitry Medvedev said he would forbid officials and executives from state-owned companies from attending. But after Medvedev’s comments, Putin said businesses should decide for themselves if they want to participate. Now, confused officials don’t understand if they can go or not.

  • Dmitry Medvedev threatened a boycott of Davos on Tuesday if the forum’s organizers don’t reconsider their decision to disinvite Russian businessmen named on the U.S. sanctions list. These include billionaires Victor Vekselberg and Oleg Deripaska, as well as Andrei Kostin, the head of state-owned bank VTB. The boycott was immediately backed by the executives of major companies, including former economist-reformer and now head of state-owned Rosnano Anatoly Chubais. But the following day, Putin sent a new signal. He said Russia’s reputation wouldn’t suffer from non-participation in Davos, but that Russian businessmen are free to make their own decisions.
  • As a result, those planning to travel to Davos are in a quandary. “We are in an unclear situation: Medvedev said ‘boycott’, Putin gave his permission, but not to us, just to businesses… no one knows if the government will send a delegation or not. We are awaiting a decision,” one government official told The Bell.
  • But while officials wait for a coordinated position to emerge, at least three major Russian firms have disappeared from the list of the forum’s sponsors: Kostin’s VTB, Vekselberg’s Renova and the anti-virus software producer, Kaspersky Lab, which is not under sanctions, but is being investigated by the U.S. for cooperating with Russian security services and, for all practical purposes, remains banned from operating inside America. VTB was one of Davos’ strategic partners and a source told the The Bell that sponsorship of the forum had cost the bank up to 1 million Swiss francs ($993,000).

Why the world should care:

The confusion generated by Putin’s comments suggests that Russia isn’t happy about completely giving up its participation in major international events.

An unprecedented crowdfunding campaign looks like a potent new form of protest

What happened

Last week, Russia witnessed one of its most amazing manifestations of civil society in recent years. A Moscow court fined opposition news outlet, The New Times, 22 million rubles ($400,000) for failing to report foreign funding. Paying would have meant bankruptcy. But when news of the fine went public, the outlet, which has never been particularly popular, managed to raise enough money to pay it off after just a 4-day crowdfunding campaign.

  • Under Russian law, media outlets are required to report to the government if they receive funding from abroad or from so-called foreign agents NGOs, which are funded from abroad. If this isn’t done, they face fines equal at least to the size of the foreign funding. The New Times received money from the Fund to Support the Free Press, which is registered in Russia but accepts funds from foreign donors, but did not report the funding. An inspection led to The New Times being hit with the largest fine in the history of Russian media business.
  • After the court announced its decision, publisher Yevgenia Albats, who holds a PhD from Harvard University, wrote: “the magazine doesn’t have 22 million rubles, nor ten times less than this. If we don’t pay the fine, they will shut us down (although there is a slight chance that we might appeal the decision) – therefore we are announcing a fundraising campaign”. This looked like a long shot, but in just four days they raised $480,000 and donations continues to pour in.
  • The New Times is an old, independent magazine that writes about politics and society, and specializes in investigative reporting. Notably, the magazine reported on Putin’s eldest daughter (the president hides everything about his family) and a slush fund used by the Kremlin to finance the so-called loyal opposition. But the publication can’t be called popular, probably the fairest description is: “widely read in narrow circles”. In 2017, it scrapped its magazine became an online-only publication. Now it has 15,000 subscribers, but donations in the crowdfunding campaign came from at least 20,000 individuals, according to Albats. These ranged from tiny donations from the regions to a former head of the Central Bank and opposition leader Aleksei Navalny. The owner of a Michelin-starred restaurant in London, Yevgeny Chichvarkin, donated $17,800.

Why the world should care

To understand why so much money was collected so quickly, you shouldn’t think about this media outlet specifically, but the nature of Russian civil society. When you can go to jail for sharing a social media post or attending a protest, donations become political statements. Several opposition publications in Russia successfully survive through crowdfunding, but the huge amount raised in such a short period of time by The New Times is unprecedented. It seems clear that these donations are a form of protest.

“We put on Super Mario costumes”: Highlights from an interview with Daria Rebenok

What happened

This week Forbes published its annual 30 Under 30 rating, which included 600 successful young entrepreneurs from across the globe. Three Russians were on the list, including the founders of Grabr, Artyom Fedyaev and Daria Rebenok. Founder of The Bell, Liza Osetinskaya, interviewed Daria for our video project Russians are OK! and here are the best quotes:

How they got the idea for the business

“We really love travelling. Spain is one of our favorite destinations. There you can buy Alvalle brand gaspacho for just €2. In San Francisco it was tough, cold, and one evening we were talking and remembered that gazpacho. Let’s order some, we said to ourselves. But we couldn’t find it anywhere. And we thought: ‘My god, in San Francisco, where you can do everything at the touch of a button, we can’t even buy Spanish gazpacho. What is it like in Russia and other countries?’ We realized that such a service would be in demand — just like Postmates or Airbnb, where you make friends with fellow travellers and they bring you something. More than 50 million people across the globe each month are unable to buy a product they want on Amazon or the other top 20 American marketplaces.”

What Grabr does

“We have about a million users. As a traveller, you tell the service about your trip and you are notified that people from that country or city want something. If that happens, you can offer to deliver it. Depending on where you are flying to and how much time you are willing to spend, on one trip you can make anything from $10, if you bring a small item, to $1000 for a large order. On average, our users earn $350–$500. We earn a commission from each user of 7-15%. We have a dream to partner with credit cards or airlines. And we want to build a loyalty program so that people who fly often and deliver a lot of things earn miles which are then turned into tickets for air travel or free hotel stays.”

Where the first money came from

“My husband Artyom arrived in San Francisco without any specific plans as to where he would spend the night. A poor student can’t afford a hotel in the city. But his former university classmate lived here and called him and said: ‘I am going away this weekend, but you can stay with my friend and sleep on the sofa in his dorm”. They stayed up all night, of course. In the morning, the friend, whose couch my husband had slept on, said: ‘My parents, who live in Silicon Valley, just invited me and my friends for breakfast. Do you want to join?’ Artyom found himself sitting at a table with the friend’s parents who, it turns out, were investors in Silicon Valley. One of them asked Artyom: ‘Who are you, what do you do and how do you know my son?’ Artyom kept his cool and began to share his idea for a start-up. One of the them liked the idea so much that after breakfast he invited Artem for a drive, showed him Stanford and Google, and said: ‘If you are serious about this, send me a presentation’. Three months later, he gave the first $100,000.”

The search for investors

“At first, our parents helped us. Then we began to find angel investors in Russia: it was easier to raise money there for an early-stage project. We were at an event for start-ups hosted by TechCrunch. I looked around, there were so many people, so many companies, investors, journalists. How could we get their attention? I said: ‘we should put on costumes.’ Basically, we put on Super Mario costumes. A fund from Singapore noticed us and offered $2 million and this was a door opener for us to talk to Russian investors.”

Anastasia Stognei

Peter Mironenko and Irina Malkova contributed for this newsletter. Translation by Tanja Maier, editing by Howard Amos.

This newsletter is supported by the Investigative Reporting Program at UC Berkeley.

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