Competition Markets Authority
Signalling systems are used across mainline rail and urban metro routes such as the London Underground to control the movement of trains, supporting the safety and reliability of services. Hitachi Rail Ltd (Hitachi) and Thales SAs Ground Transportation Business (Thales) are both large global suppliers of signalling systems for both mainline and urban tracks. Hitachi announced a 1.7 billion deal to acquire the Thales Ground Transportation Business in August 2021.
The supply of mainline signalling in Great Britain is currently undergoing significant change. A recent market study carried out by the Office of Rail and Road (ORR) found that supply of mainline signalling in Great Britain suffered from a lack of competition, with the market essentially being limited to only two suppliers Siemens and Alstom. ORR made a number of recommendations intended to increase competition from alternative suppliers, such as Hitachi and Thales.
The principal UK customer for mainline signalling, Network Rail is putting in place a new tendering process for its next major signalling procurement (the Train Control Systems Framework) to implement these recommendations. In parallel, the introduction of digital technology will drive one of the most significant modernisation programmes in the nearly 200-year history of Britains railway infrastructure.
The Competition and Markets Authority (CMA) is concerned that the deal between Hitachi and Thales could eliminate a credible competitor from the new tendering process for mainline signalling, just when both firms are expected to offer much-needed additional competition.
In urban signalling, Thales has a strong position within the UK market, as the largest provider of Communication Based Train Control (CBTC) signalling projects for Transport for London (TfL) services. While Hitachi has a much smaller position in the UK at present, it is one of a limited number of rivals with the capabilities to challenge Thales for these projects in future.
The resulting loss of competition across both mainline and urban signalling markets could increase costs for Network Rail and TfL and have an adverse knock-on effect on taxpayers and passengers.
Hitachi now has an opportunity to submit proposals to resolve the CMAs concerns or the deal will face a more thorough Phase 2 investigation.
Colin Raftery, Senior Mergers Director at the CMA, said:
Network Rail currently spends close to 1 billion annually on mainline rail signalling and this is expected to increase in future, as equipment needs to be replaced and the UK transitions to digital signalling.
The cost of signalling, and its critical role in the safe and efficient running of our railways, makes it important that we ensure that future tenders can deliver value for money.
This deal involves two of the main competitors for future mainline rail and urban metro signalling projects, so the loss of competition could risk higher costs and lower quality services, which would ultimately come at the expense of taxpayers and passengers.
For more information, visit the Hitachi / Thales case page.
Notes to editors
The Office of Rail and Road published a final report following their market study into rail signalling systems in November 2021. ORR found that UK mainline rail signalling markets are highly consolidated, with high barriers to entry. Further information on the report can also be found in the ORRs blog.
The CMAs competition concerns relate to the provision of:
- automatic train protection systems compliant with the European Train Control System (ETCS) standard, and interlockings, both of which are installed along mainline railway lines.
- operation and control systems, which are IT solutions designed to ensure the overall management of mainline rail networks.
- communication Based Train Control (CBTC) metro signalling systems, which are used across London Underground.
Given the use of CBTC signalling systems across all of Londons metro lines, the CMA focused part of its investigation on the capital and how Hitachi and Thales will compete for signalling systems there in the future.
Hitachi and Thales have until 16 December to submit proposals to address the CMAs competition concerns. The CMA would then have until 23 December to consider whether to accept these in principle or refer the deal for an in-depth phase 2 investigation.
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