Amazon tried to make their own phone and failed. And they already had an "app store" ecosystem with their Kindle Fire tablets. If Amazon can't make it work with all it's advantages, I don't see Epic succeeding starting from scratch...

https://en.wikipedia.org/wiki/Fire_Phone

The phone is not required to be special. They don't need to design new hardware from scratch. All they have to do is to rebrand existing phones.

The phones are simply Android phones with different app store with different policies.

Users can install from Google if they still want.

If fact they can rebrand another phone and add another appstore.

Why don’t Apple and Google and a group of like-minded firms develop Fortnite? You have a limited number of resources (employees, money, executive oversight, time) and it is better to spend that perfecting what is already in your business than pivoting to an entirely new industry. Developing a smartphone is incredibly difficult with a very high barrier to entry for something that could actually compete in the marketplace. Who provides connectivity, CPU, GPU, cellular, OS, display, camera, audio, video, etc? This would be very significant effort for a game developer to get into.

Who says they have to design a new phone from scratch?

All they have to do is to rebrand one or more existing phones and change the app store policy. Only the app store software needs to be changed.

What is so difficult about that?

If Apple and Google tax app developers like Epic so much, then why don't Epic either individually or as part of a coalition with other companies create their own phone?

Five years is more than enough time to establish a new more liberal ecosystem for app developers if Google and Apple won't play ball, so what is holding them back?

This sounds reasonable but when you start doing the math it just doesn't make sense. Creating the device and getting it certified world wide is difficult but very doable. Pulling users away from their platforms and ecosystems is infinitely more difficult. I think you underestimate the draw the ecosystem has for all the other apps etc for people. This is why it is hard to compete with Google and Apple, it has almost nothing to do with the phone/OS.

I don't think it should be anything more than a regular Android phone with an alternative app store.

Huawei, Redmi, Samsung and Amazon have their own app stores, so why should it be difficult for Epic et al to have theirs on their own phone as well?

Is it not about creating new phones from scratch. It is simply about rebranding or OEMing Android phones with different App stores.

What so difficult about that?

Huawei was on par with FAANG growth until US sanctions hit. It wasn't just that they couldn't sell to America, it's because everyone wants to use Google Play. Breaking of from the app ecosystem is not a great plan.