Hitachi’s anticipated purchase of Thales’ rail infrastructure
business could lead to higher fares in future, the CMA has found.
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 SA’s 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
Britain’s 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
CMA’s 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 ORR’s
blog.
The CMA’s 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 London’s
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 CMA’s 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.
