Higher fares likely if Hitachi takes over Thales signalling business

The Competition and Markets Authority (CMA) has announced that passengers may face higher fares in future as a result of Thales' rail infrastructure business being sold to Hitachi.

Both Thales SA's Ground Transportation Business and Hitachi Rail Ltd are large suppliers of signalling systems for mainline and urban railways throughout the world. In August 2021, Hitachi announced it had agreed to a €1.7 billion deal to acquire the Thales Ground Transportation Business.

The Office of Rail and Road (ORR) recently reported that there is a lack of competition in the supply of mainline signalling in Great Britain, and currently there are only two suppliers, Siemens and Alstom. To increase competition from alternative suppliers such as Hitachi and Thales., the Office of Rail and Road made a number of recommendations.

In line with those recommendations, Network Rail, which is the principal UK customer for mainline signalling, is formulating a new tendering process for its next major signalling procurement, the Train Control Systems Framework. Running in parallel with that process, the introduction of digital technology is the driver behind one of the most significant modernisation programmes of railway infrastructure in Britain's railway history.

The main concern of the Competition and Markets Authority is that the deal between Hitachi and Thales could remove a credible competitor from submitting a tender for mainline signalling, just at the time when additional competition is most required.

Thales is strongly-placed within the UK market for urban signalling, and is the largest provider of Communication Based Train Control (CBTC) signalling projects to Transport for London (TfL).

Although Hitachi is currently less-prominent in the UK, it is one of the few companies with the capabilities to challenge Thales for these projects in future.

With less competition in mainline and urban signalling markets, there could be increased costs for Network Rail and TfL, which would have an adverse knock-on effect on taxpayers and passengers.
In order to resolve the concerns of the Competition and Markets Authority, Hitachi is being given the opportunity to submit proposals to answer those concerns, otherwise the deal will be submitted for a more-thorough Phase 2 investigation.

Colin Raftery, Senior Mergers Director at the Competition and Markets Authority, said:“Network Rail currently spends close to £1 billion 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.”

For more detailed information about the propped merger between Hitachi and Thales go to https://www.gov.uk/cma-cases/hitachi-slash-thales-merger-inquiry