ORR opposes Siemens-Alstom merger on competition grounds
THE Office of Rail and Road (ORR) is objecting to the proposed merger of Alstom and Siemens on the grounds that the reduction in competition, particularly in signalling, “will have a significant detrimental effect on competition in Great Britain”.
The regulator also expresses concern about the impact on competition in the rolling stock market, for which Siemens and Alstom are among the biggest suppliers in the UK market.
In its submission to the European Commission’s investigation into the merger, the ORR says “significant structural remedies are required”, including the divestiture of intellectual property, substantial assets and the “significant transfer of specialised workforce”.
It argues that the acquisition by Alstom of General Electric Signalling and Balfour Beatty’s share of Signalling Solutions, and by Siemens of Invensys Rail Systems, would (if the merger is approved) give a collective market share of between 55% and 80% of the signalling market in the UK.
This follows British Rail’s historic agreement with predecessor companies Westinghouse and General Electric Signals to develop and deploy the Solid State Interlocking (SSI) system, which forms the bedrock of much of the UK network’s signalling. ORR points out that only minor inroads have been made by competitors, and that while introduction of European Train Control System signalling will take place, analogue signalling will remain the most widely used signalling technology for the foreseeable future.
ORR considers that only Alstom and Siemens have access to accredited technology capable of efficient operation with UK infrastructure, the scale of operations and geographical presence to undertake signalling projects efficiently, the expertise and experience of working on complex projects, and an established workforce capable of the required sales, research and development planning, design, project management and information technology.
And, while Network Rail is a near monopsonist buyer of signalling, Alstom and Siemens accounted for 93% of its signalling spend in 2016-17.
ORR believes the merger of the signalling businesses “is effectively a ‘2-to-1’ merger to monopoly for the provision of signalling projects and products in Great Britain”.
A further concern is that a combined Alstom-Siemens operation would retire currently competing technologies. In other European markets, there are usually three or more suppliers. And where there are two, Alstom and Siemens do not compete.
On rolling stock, ORR calculates that Alstom and Siemens combined hold a 35% share in post-privatisation rolling stock orders. Although this is less than Bombardier, it points out that both companies are key bidders (even if unsuccessfully) on most UK rolling stock contracts.
Although in terms of the number of suppliers, the merger would be ‘5 to 4’ or ‘4 to 3’, ORR says the deal “represents a transaction whereby two of the top three regular competitors for major rolling stock contracts in Great Britain are being combined”.
ORR Chief Executive Joanna Whittington said: “Competition in the supply chains which support Britain’s railway is essential if passengers and taxpayers are to receive a high-quality service at an efficient cost.
“We are concerned that the proposed merger of Siemens and Alstom will significantly reduce competition, leading to increased costs in Britain’s railway signalling and rolling stock markets.
“That is why we are setting out strong arguments to the European Commission, and pressing for significant structural remedies to ensure competition in key railway supply chains is protected.”