AN investigation by Britain’s Competition and Markets Authority (CMA) has provisionally concluded that Hitachi’s €1.7bn proposed acquisition of the Thales’ Ground Transportation (GTS) business, announced in August 2021, could lead to a substantial lessening of competition in the supply of digital mainline and urban rail signalling systems.
The CMA says Hitachi Rail and Thales are two of the leading global suppliers of signalling systems for mainline and urban railway networks, alongside Siemens Mobility and Alstom.
A recent market study carried out by the British rail regulator, the Office of Rail and Road (ORR), found that Siemens and Alstom were essentially the two main players in the British market for major signalling projects, 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, and British infrastructure manager Network Rail (NR) is taking steps to introduce a broader range of suppliers into the British market leading to greater competition and increased capacity to deliver projects.
This includes putting in place a new tendering process for NR’s next major signalling procurement, a 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 of Britain’s rail infrastructure.
Both Hitachi and Thales are also active in urban signalling in Britain with Hitachi installing a system on the Glasgow metro and Thales installing various systems on the London Underground (LU). Transport for London (TfL), which oversees the LU network, is expected to begin replacing the signalling systems on two of London’s main underground lines over the next decade.
Considering the impact of the merger on mainline signalling, the CMA’s independent inquiry group has provisionally found that Thales and Hitachi are well placed to compete to deliver mainline signalling projects in Britain. Should the merger go ahead, it says there would be fewer credible bidders remaining for digital mainline signalling tenders, which could raise costs for NR and negatively impact the digitalisation of Britain’s rail network.
Assessing 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 LU, reducing competition for future urban signalling tenders in Britain, 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 NR and LU with an adverse knock-on effect on passengers and taxpayers.
“Britain’s railway networks spend millions of pounds each year maintaining and upgrading signalling systems which ensure transport networks run smoothly and passengers remain safe,” says chair of the independent inquiry group, Mr Stuart McIntosh. “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.
Responding to the announcement, a Hitachi Rail spokesperson said they were disappointed by the CMA’s provisional findings and will now closely examine how it can respond to the concerns raised.
“Hitachi remains of the firm view that the merger will not substantially lessen competition for Britain’s signalling projects,” the spokesperson says. “We are reviewing the proposed provisional findings as a matter of absolute priority and we remain committed to addressing the CMA’s concerns through a cooperative approach. Our focus now is to find the best potential mitigations and an appropriate way forward.
“Regulatory approvals have been secured in all other relevant jurisdictions except the European Union (EU), where we are making good progress towards securing clearance from the European Commission (EC) this summer. This merger will be good for competition and benefit customers in the Britain and internationally.”
The CMA will now consult on the findings and on how Hitachi and Thales might address the 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 undertake a three-week consultation period on its provisional findings and potential remedies to ensure competition is protected in the supply of both digital mainline and urban signalling in Britain. This could range from requiring Hitachi or Thales to sell parts of their existing businesses to prohibiting the merger altogether.