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Signaling systems are used on mainline rail and urban metro routes – such as the London Underground – to control train movements, supporting the safety and reliability of services. Hitachi Rail Limited (Hitachi) and Thales SA’s ground transportation business (Thales) are both major global suppliers of signaling systems for both mainline and urban tracks. Hitachi announced a €1.7 billion deal to acquire Thales’ ground transportation business in August 2021.
The supply of mainline signaling in Great Britain is currently undergoing significant change. A recent market study carried out by the Office of Rail and Road (ORR) found that the supply of mainline signaling in Great Britain suffers from a lack of competition, with the market essentially limited to just two suppliers – Siemens and Alstom. The ORR made a number of recommendations aimed at increasing competition from alternative suppliers such as Hitachi and Thales.
Network Rail, the UK’s main customer for mainline signalling, is undertaking a new tendering process for its next major signaling procurement (Train Control Systems Framework) to implement these recommendations. In parallel, the introduction of digital technology will drive one of the most important modernization programs in the nearly 200-year history of Britain’s railway infrastructure.
The Competition and Markets Authority (CMA) is concerned that a deal between Hitachi and Thales could remove a credible competitor from the new tendering process for mainline signalling, while the two companies are expected to offer much-needed additional competition.
In urban signalling, Thales has a strong position in the UK market, as the largest provider of Communication Based Train Control (CBTC) signaling projects for Transport for London (TfL) services. While Hitachi currently has a small presence in the UK, it is one of a limited number of competitors with the potential to challenge Thales for these projects in the future.
The resulting loss of competition in both the mainline and urban signaling 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 address the CMA’s concerns or the deal will face a more thorough Phase 2 investigation.
Colin Raftery, CMA’s Senior Mergers Director, said:
“Network Rail currently spends close to £1 billion a year on mainline rail signaling – and this is expected to increase in the future, as equipment needs to be replaced and the UK transitions to digital signalling.
“The value of signalling, and its vital role in the safe and efficient operation of our railways, means we ensure that future tenders can deliver value for money.
“The deal involves two major competitors for future mainline rail and urban metro signaling projects, so the loss of competition risks higher costs and lower quality services, which will ultimately come at the expense of taxpayers and commuters.”
For more information, visit the Hitachi/Thales case page.
Notes to editors
The Office of Rail and Road published the final report following their market study on rail signaling systems in November 2021. The ORR found that UK mainline rail signaling markets are highly consolidated, with high barriers to entry. More information on the report can also be found in 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 installed on main railway lines.
- Operation and Control Systems, which are IT solutions designed to ensure the overall management of the mainline rail network.
- Communication Based Train Control (CBTC) Metro signaling systems, used throughout the London Underground.
Given the use of the CBTC signaling system on all London Metro lines, the CMA focused part of its investigation on the capital and how Hitachi and Thales would compete for signaling systems there in the future.
Hitachi and Thales have until December 16 to submit proposals to address the CMA’s competition concerns. The CMA will then have until December 23 to consider whether to accept this in principle or refer the deal for a phase 2 in-depth investigation.
All inquiries from journalists should be directed to the CMA Press Office by email at press@cma.gov.uk or by phone on 020 3738 6460.
All inquiries from the general public should be directed to the CMA’s General Inquiries Team at general.enquiries@cma.gov.uk or 020 3738 6000.
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