Signalling systems are used across mainline rail and urban metro routes – such as the London Underground – to control the movement of trains and maintain reliable services.
The rail arms of both Hitachi and Thales are major global suppliers of signalling systems for mainline and urban tracks. In August 2021, Hitachi announced a €1.7bn deal to acquire the Thales Ground Transportation Business.
A recent market study carried out by the Office of Rail and Road (ORR) found that supply of mainline signalling in Great Britain suffered from a lack of competition, with the market essentially being limited to only two suppliers – Siemens and Alstom.
The body made a number of recommendations intended to increase competition from alternative suppliers, such as Hitachi and Thales.
The principal UK customer for mainline signalling, Network Rail, is putting in place a new tendering process for its next major signalling procurement to implement these recommendations. It also plans to introduce digital technology in one of the most significant modernisation programmes for rail in the nearly 200-year history of Britain's railway infrastructure.
The CMA said it was concerned that the deal could eliminate a credible competitor from the new tendering process for mainline signalling, just when both firms are expected to offer much needed additional competition.
In terms of urban signalling, Thales already has a strong position within the UK market while Hitachi has a much smaller position at present.
The resulting loss of competition across both mainline and urban signalling 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 resolve the CMA's concerns or the deal will face a more thorough Phase 2 investigation.
Colin Raftery, senior mergers director at the CMA, said: "Network Rail currently spends close to £1bn annually on mainline rail signalling – and this is expected to increase in future, as equipment needs to be replaced and the UK transitions to digital signalling.
"The cost of signalling, and its critical role in the safe and efficient running of our railways, makes it important that we ensure that future tenders can deliver value for money.
"This deal involves two of the main competitors for future mainline rail and urban metro signalling projects, so the loss of competition could risk higher costs and lower-quality services, which would ultimately come at the expense of taxpayers and passengers."
