Merger could mean Network Rail and TfL lose out on digital signalling options

An investigation by the Competition and Markets Authority (CMA) has provisionally concluded that Hitachi’s €1.7 billion proposed acquisition of the Thales’ Ground Transportation (GTS) business could lead to a substantial lessening of competition in the supply of digital mainline and urban signalling rail systems.

Signalling systems are a core part of railway infrastructure, helping to maintain passenger safety by controlling the movement of trains and maximising capacity on railway networks. Hitachi Rail Ltd (Hitachi) and Thales SA’s Ground Transportation business (Thales) are two of the leading global suppliers of signalling systems for mainline and urban railway networks (alongside Siemens and Alstom).

Network Rail, the primary customer for mainline signalling systems in Great Britain (GB), is planning to upgrade much of the country’s rail signalling system over the next decade, deploying new digital technologies. Transport for London (TfL), which oversees London Underground, the largest urban rail system in the country, is also expected to begin replacing the signalling systems on two of London’s main underground lines over a similar period. Historically, a very small number of suppliers have dominated the provision of both mainline and urban rail signalling systems in the UK.

The CMA’s independent Inquiry Group considered the impact of the merger on mainline signalling. The Inquiry Group has provisionally found that Thales and Hitachi are well placed to compete to deliver mainline signalling projects in GB. Should the merger go ahead, there would be fewer credible bidders remaining for digital mainline signalling tenders, which could raise costs for Network Rail and negatively impact the digitalisation of the UK’s rail network.

The CMA also assessed the merger’s impact on competition to replace the signalling systems on London’s highly complex underground lines. The Inquiry Group has provisionally found that the transaction could reduce the limited number of global suppliers with the capabilities to challenge Thales, the main provider of signalling systems to London Underground, reducing competition for future urban signalling tenders in the UK, particularly London.

Overall, the Inquiry Group provisionally concluded that the merger is likely to reduce choice, options, and competition in markets where there are only very few competitors and could lead to worse outcomes for Network Rail and London Underground with an adverse knock-on effect on passengers and taxpayers.

Stuart McIntosh, chair of the independent Inquiry Group, said:

UK railway networks spend millions of pounds each year maintaining and upgrading signalling systems which ensure transport networks run smoothly and passengers remain safe. Healthy competition in this market is essential to support innovation as well as to keep costs down.

We have provisionally found that, should the Merger go ahead, it would reduce the number of signalling suppliers in what is already a highly concentrated industry, and the resulting loss of competition could leave transport networks and passengers worse off.

We will now consult on our findings and on how Hitachi and Thales might address our concerns, in a way that protects passengers and delivers the government’s objective for a more reliable, efficient and modern railway.

The CMA will now consult on its provisional findings and potential remedies to ensure competition is protected in the supply of both digital mainline and urban signalling in the UK. This could range from requiring Hitachi or Thales to sell parts of their existing businesses to prohibiting the Merger altogether.

Further details are available on the Hitachi/Thales case page.

Note to editors:

1. Digital mainline signalling is an in-cab signalling system that allows trains to run closer together safely and to travel at their optimal speeds; conventional mainline signalling provides information to train drivers via colour light signals alongside the tracks. Digital Communications Based Train Control (CBTC) signalling is the most common signalling technology used for urban metros such as the London Underground.
2. The supply of mainline signalling in GB is currently undergoing significant change. A recent market study carried out by the British rail regulator – the Office of Rail and Road (ORR) - found that there were essentially two main players in the GB market for major signalling projects, namely Siemens and Alstom, and that other firms were not able to compete on equal terms. It also found that there has been a significant increase in the cost of signalling. ORR made a number of recommendations intended to increase competition from alternative suppliers, such as Hitachi and Thales.
3. Historically, Network Rail has relied primarily on two main signalling suppliers, Siemens and Alstom, and the ORR has made recommendations to increase the number of suppliers of mainline signalling in GB. Following those recommendations, Network Rail is taking steps to introduce a broader range of suppliers into the GB market leading to greater competition and increased capacity to deliver projects.
4. The principal GB customer for mainline signalling, Network Rail is putting in place a new tendering process for its next major signalling procurement, Train Control Systems Framework (TCSF), to implement the ORR’s 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.
5. Both Hitachi and Thales are active in urban signalling in the UK with Hitachi installing a system on the Glasgow Subway and Thales installing various systems on the London Underground.
6. There is now a 3-week consultation period on the provisional findings, during which time anyone may make submissions to the CMA. Submissions should be made to Hitachi.Thales@cma.gov.uk and received by 29 June.