ORR recommends further action to tackle signalling market competition concerns

11 May 2021

The Office of Rail and Road (ORR) has found that competition needs to be improved in Great Britain's railway signalling market particularly as new technologies are rolled out as part of Network Rail's delivery of the Digital Railway programme. This follows completion of the first stage of our study into this important market. ORR intends to take action to address this issue.

Signalling systems are an essential part of the railway. They keep passengers safe by ensuring trains are routed correctly and safely through the network and play an important role in maximising capacity on Great Britain's congested network.

In today's update paper, ORR raises concerns that the two main signalling suppliers, Siemens and Alstom, enjoy significant power in the market, and alternative companies struggle to compete with them on a level playing field.

ORR considers that the two main players have incumbency advantages, stemming back to rail privatisation. Their control of technology which is predominant across the network makes it difficult for new suppliers to bring in innovative products or approaches. The way the market works also reduces incentives for new suppliers to make the investment necessary to be competitive in Great Britain. ORR is concerned that these entrenched advantages and competition problems will be carried through to the roll-out of alternative signalling technologies.

ORR believes the rollout of the Digital Railway presents a unique opportunity to diversify the supply chain and increase rivalry. Increasing the number of players in the market will help Network Rail drive better value and innovation.

ORR is challenging industry to tackle barriers it has identified so that new suppliers have a fair opportunity to compete, and are incentivised to invest and bid for signalling projects. These solutions will need to recognise the need for Network Rail to maintain an effective and safe signalling system, whilst also harnessing the benefits of increased competition.

John Larkinson, ORR Chief Executive, said:

"Our study has found that there are competition issues in the critical signalling market. There are no quick fixes to address these problems, but we are committed to challenging industry to seize the opportunity of the rollout of new approaches to signalling to diversify the supply chain, and, ensure Network Rail is able to drive value and innovation from its suppliers."

Notes to editors:

1.   Market study into the supply of signalling systems - May 2021 update.

2.   In addition to being the designated UK rail regulatory body, ORR is also a competition authority with powers held concurrently with the Competition and Markets Authority (CMA) to apply competition enforcement and markets powers in matters relating to the supply of services relating to railways.

3.   The market study launched on 11 November 2020. The statutory deadline for its completion is 10 November 2021. This update paper marks a midway point. We set out in the paper that whilst we intend to take action we have decided not to make a market investigation reference to the CMA.

4.   During control period 5 ("CP5"), Network Rail's signalling expenditure was in the region of c£0.8-0.9 billion p.a. This represents over 10% of Network Rail's total cost base.

5.   ORR has a number of tools at its disposal to bring about change and will keep developments in this market under close review to monitor whether positive developments are happening. Our powers include to the option to introduce new licence conditions and to take enforcement action under competition law to address any illegal anti-competitive conduct.