The government has made moves to boost control over the Internet, but a state-backed search engine, to be called www.sputnik.ru, would face leading search engine company Yandex, with 62 percent of the market, U.S. giant Google and Mail.Ru.
"Search engines are a completely different area from the telecoms service business in which Rostelecom is involved," said VTB analyst Ivan Kim in a research note. "With its lack of expertise, the venture is unlikely to meet with success."
Rostelecom did not immediately reply to a request for comment about the project, to be named after the first man-made satellite, which was launched in October 1957.
The new search engine may have to be used by state institutions as a default tool, said Vedomosti, citing sources at Rostelecom and other Internet companies in its report. It said the project had cost $20 million so far.
Kim said the plan looked like it was imposed on Rostelecom by the state and would most likely be a cash drain.
Russia, with the largest Internet audience in Europe, has increased state control over the Web, including launching a black list of sites distributing content such as child pornography, but which critics said could boost censorship.
Rostelecom is trying to hire developers from rivals to work on the search engine project, expected to be launched in the first quarter of 2014, Vedomosti added. The project has so far indexed about half of the Russian Internet, it said.
Bank of America Merrill Lynch analysts said in a note that developing high-quality search technology may require the best talent and long research and development and that the quality of search results may be well below that of leading firms.
"Even if the launch of Sputnik is well-executed, we do not expect it could significantly eat into the market shares of Yandex or Google," the Merrill Lynch analysts wrote.
© Thomson Reuters 2013
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