There isn't much concrete information, but my guess is that OS/ecosystem is exactly what this project is, and that they are not talking about physical hardware. Specially considering that they are putting the emphasis on free software (not hardware) and they are involving a software developer. Making a phone's hardware free would be an entirely different beast.
In the afternoon, FSF executive director Zoë Kooyman announced an exciting new project: Librephone.
Librephone is a new initiative by the FSF to bring full computing freedom to mobile computing environments. The LibrePhone Project is a partnership with Rob Savoye, a developer who has worked on free software (including the GNU toolchain) since the 1980s. "Since mobile phone computing is now so ubiquitous, we're very excited about LibrePhone and think it has the potential to bring software freedom to many more users all over the world."
Still, if they were actually being honest, this would be easily solved if they showed those "critical setup screens" BEFORE asking to create the account, and based on what the user selected then they would allow (or not) the creation of a local account...