Oil-rich Russia is a major market for foreign handset makers such as Apple and Samsung Electronics, but it has so far not been successful in designing handsets.
Moscow-based Yota Devices plans to sell the phone in 20 countries next year after making its 2013 debut in Russia, Austria, France, Germany and Spain.
"If we really hit the mark, we'll be happy because in two to three years everyone will be copying us," said Yota Device's Chief Executive Vlad Martynov, referring to the success of Apple's iPhones since their launch in 2007. He currently has no plans to launch in the competitive U.S. market.
Analysts were sceptical, predicting it will struggle to emulate the success of Apple's iPhone or Samsung's Galaxy smartphone.
"In people's minds Yota Devices is a no-name company, it's not Samsung or Nokia or Apple, which all have their fans. No one will be expecting a YotaPhone," said Denis Kuskov, analyst at research firm TelecomDaily.
"At best, the sales will be limited to several tens of thousands in 2014. The company is focused on developing one model and big production costs clearly won't be covered."
The YotaPhone, assembled in China from components made in Japan and Taiwan, features a backlit liquid crystal display (LCD) screen on one side and an electronic paper display designed to mimic the appearance of ordinary ink on paper, which is always switched on.
"It's a new type of gadget. With smartphones it's always one problem - its display is always black, it always sleeps, which we think is fundamentally wrong," Martynov said, pointing at the smartphone's front screen.
The electronic paper screen can stream social media, text messages, maps, weather and breaking news. It also works as an e-book.
The phone, based on Google's Android mobile operating system, will be available for 19,990 roubles in Russian stores against a price of around 29,000 roubles for Apple's iPhone 5c with the same memory.
In Europe and the United Arab Emirates the YotaPhone will be available for 499 euros and $600, respectively.
Yota has received about 10,000 pre-orders, mostly from Russia, Martynov said.
Sales of smartphones in Russia exceeded sales of mobile phones for the first time in November, Russia's top phone retailer Euroset said last week. In monetary terms smartphones accounted for 85 percent of the market, it added.
Yota Devices, majority owned by Russian investment fund Wooden Fish, was spun off from wireless internet provider Yota, also known as Scartel, in 2011, ahead of a deal that saw Russia's No.2 mobile operator Megafon buy Scartel for $1.2 billion.
© Thomson Reuters 2013
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