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REG - Competition and Mkts - Merger Update: Hitachi / Thales

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RNS Number : 0876C  Competition and Markets Authority  08 June 2023

 

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

CMA's investigation provisionally concludes that Hitachi's takeover of Thales
GTS could reduce choice for Network Rail and TfL, impacting cost and service
quality for passengers

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
(https://www.gov.uk/cma-cases/hitachi-slash-thales-merger-inquiry) .

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 (mailto:Hitachi.Thales@cma.gov.uk) and
received by 29 June.

7.   All media enquiries to the CMA should be directed to press@cma.gov.uk
(mailto:press@cma.gov.uk) or 020 3738 6460.

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