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.
