Merger Hitachi and Thales could negatively impact digitalisation, says UK body

Signals at Birmingham New Street Network Rail

Hitachi’s 1.7-billion-euro 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, impacting cost and service quality for passengers”, an investigation by the UK’s Competition and Markets Authority (CMA) has provisionally concluded. 

Hitachi Rail and Thales are two of the leading global suppliers of signalling systems for mainline and urban railway networks, alongside Siemens and Alstom. Hitachi announced in 2021 that it would acquire the Thales Ground Transportation business. The Japanese company is expanding its position in the European rail market, moving the headquarters of its train division from Tokyo to London back in 2014.

“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 writes. Thales and Hitachi are both well placed to compete to deliver mainline signalling projects, sees the body, and thus would reduce choice for the country’s infrastructure managers. Historically, already a very small number of suppliers have dominated the provision of both mainline and urban rail signalling systems in the UK, the CMA points out. The UK Office of Rail and Road (ORR) already concluded in 2021 that the railway signalling market in the United Kingdom has too little suppliers, high costs, and Network Rail does not have the procurement practices in place to benefit from its considerable buyer power.

Hitachi Rail responded to the provisional findings, saying they are “disappointed, and will now closely examine how we can respond to the concerns raised. Hitachi remains of the firm view that the merger will not substantially lessen competition for UK signalling projects”, a spokesperson said.

Hitachi points out that regulatory approvals have been secured in all other relevant jurisdictions except the EU.  “We are making good progress towards securing clearance from the European Commission this summer. This merger will be good for competition and benefit customers in the UK and internationally”, poses Hitachi.

‘Healthy competition essential’

Railway manager Network Rail, the primary customer for mainline signalling systems in Great Britain, 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 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. Both Hitachi and Thales are active in urban signalling, with Hitachi installing a system on the Glasgow Subway and Thales installing various systems on the London Underground.

Stuart McIntosh, chair of the competition authorities’ independent Inquiry Group: “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.”

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, or prohibit the merger altogether. In another major rail merger in recent years, that of Alstom and Bombardier, Alstom had to transfer business activities of Bombardier Transportation’s contribution to the V300 Zefiro very high-speed train to Hitachi Rail, a condition int this case set by the European Commission before agreeing to the merger.

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Author: Esther Geerts


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