A little-known Russian company plans to implement an ambitious project to build a Trans-Arctic main communications line to route transit traffic between Europe and Asia and has already obtained approval from a government commission.

The Russian government’s commission for federal communications and technological issues approved a project for the construction of a Trans-Arctic fiber optic communications line in mid-October. The projected 17 000-kilometer submerged line, connecting the cities of Tokyo and London through Russia’s Arctic and Pacific coast, is expected to be an alternative to existing Europe-Asia communications lines via the Indian Ocean and through the U.S. Polarnet Project. The company that is expected to implement the project plans to build the main line in three stages starting in 2012.

During the first stage, which is to be completed in 2014, the company plans to build the submarine part of the main line; at the second stage Polarnet Project plans to build lines connecting the submarine main line with the Arctic and Far East coast; and during the third stage it plans to build terrestrial sections of the line in strategic partnership with oil pipeline company Transneft, Polarnet Project’s Deputy CEO Ruslan Saushkin said without providing a timeline for the completion of the whole project.

Still, the prospects of the project are doubtful, as there are already several main lines routing traffic between Europe and Asia, and Russian lines are not as popular as foreign ones, some market analysts however said, adding that the projected line is unlikely to make Russian routes significantly more attractive for traffic transit.

The reasonability of building a Trans-Arctic submarine communications line to route transit traffic between Europe and Asia is currently unclear, consulting company Direct INFO Executive Director Alexei Kondrashov said, adding that Russian wireline operators Rostelecom and TransTeleCom already route traffic between Europe and Asia via their terrestrial lines, and “their main lines are not fully loaded, so there is no urgent need for new lines to route transit traffic.”

The projected line is unlikely to route large amounts of traffic between Europe and Asia, as there are other lines already routing such traffic via the Indian Ocean and Central Asia and via the Atlantic Ocean, the U.S., and the Pacific Ocean, alongside the terrestrial lines going through Russia, Kondrashov said.

Konstantin Ankilov, project director of iKS-Consulting, however said that the projected Trans-Arctic line might be a rival to the existing lines if it provides better quality of traffic routing. The projected line is expected to be shorter than foreign lines connecting Europe and Asia, which is likely to lead to shorter traffic delays, he said.

Delays while routing traffic from Tokyo to London via the projected line are estimated at 190 milliseconds, about 40% less than traffic delays of the lines connecting these cities via other routes outside Russia, Saushkin from Polarnet Project said.

Shorter traffic delays are crucial for instance for the financial sector, where trading is more and more frequently performed by robots, Kondrashov from Direct INFO said, adding that shorter delays can be a good advantage for a main line. The projected Trans-Arctic line is however still likely to be longer than terrestrial main lines going through Russia, Kondrashov said, adding that it is unclear why the projected line is to be a more attractive alternative to the existing lines of Rostelecom and TransTeleCom.

Nevertheless, the projected main line may improve the positions of Russia on the market for routing transit traffic between Europe and Asia, especially taking into account that Russia’s current positions are far from being strong, Ankilov from iKS-Consulting said, estimating annual revenue of Russian operators from routing transit traffic at less than $100 million.

Kondrashov from Direct INFO meanwhile estimated joint annual transit traffic routing revenue of Rostelecom and TransTeleCom, currently the two largest Russian participants on this market, at no more than $30 million. “Rostelecom and TransTeleCom fail to be strong rivals to foreign operators routing traffic between Europe and Asia,” he said. Polarnet Project’s line is also unlikely to be a successful rival to foreign main lines, as operators of the existing lines usually have long-term contracts with their customers, which are unlikely to be terminated, Kondrashov said, adding that Russia’s position on the market for traffic transit is unlikely to significantly improve after the launch of the Trans-Arctic main line.

Saushkin from Polarnet Project however said that the company was already in talks with European and Asian communications operators over possible contracts on preliminary sales of the Trans-Arctic line’s capacity for routing their traffic. “An analysis of the market for wholesale sales (of communications channel capacity) shows an unprecedented growth in demand, which allows us to develop an aggressive policy of selling the capacity of the future (Trans-Arctic) cable system,” Saushkin said, adding that, taking into account the estimated price for routing transit traffic, the project is unlikely to return investments already during the first stage of the project, which is to be completed in 2014.

Polarnet Project estimated investments required for the construction of the Trans-Arctic main line at $1.86 billion, Saushkin said without specifying from where the company plans to take money for financing the project. Polarnet Project’s owners are unclear.

The estimated investments suggest that construction of each kilometer of this line is to cost about $100 000, while building terrestrial fiber optic main lines usually costs $20 000 per kilometer, Ankilov from iKS-Consulting said, adding that taking into account that Polarnet Project plans to build a line under the Arctic seas, the estimates look realistic.

It is hard to say whether investments estimated by Polarnet Project are enough, but even if they are enough, the investments are unlikely to be recouped quickly, Kondrashov from Direct INFO said, adding also “it is unclear who will give this big money for such an ambitious project with an uncertain outlook.”

The projected main line may return investments if it is focused on backing Russian broadband networks rather than on routing transit traffic, Kondrashov noted. “The line may give a good impulse to the development of broadband networks in remote northern parts of Russia’s Siberia and Far East,” he said.

Polarnet Project plans to build lines connecting the Trans-Arctic main line with the coast, Saushkin said.

Although theoretically it is possible to connect the line with remote northern localities, this is unlikely to be economically reasonable, Ankilov from iKS-Consulting  noted. “The north of Siberia and Far East are so huge, and distances (between localities) are so colossal, that even having a main line somewhere in the sea won’t make it reasonable to develop broadband networks in these sparsely populated areas,” Ankilov said.