Commission, February 6, 2019, No M.8677

(Case M.8677 SIEMENS/ALSTOM)

(Text with EEA relevance) (Only the English text is authentic)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to the Agreement on the European Economic Area, and in particular Article 57 thereof,

Having regard to Council Regulation (EC) No 139/2004 of 20.1.2004 on the control of concentrations between undertakings1, and in particular Article 8(3) thereof,

Having regard to the Commission's Decision of 13 July 2018 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission,

Having regard to the opinion of the Advisory Committee on Concentrations2, Having regard to the final report of the Hearing Officer in this case3, Whereas:

1.                      INTRODUCTION

(1)     On 8 June 2018 the European Commission (the "Commission") received notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (the "Merger Regulation")4 by which Siemens AG (hereinafter referred to as "Siemens" or the "Notifying Party") will acquire sole control of Alstom SA (hereinafter referred to as "Alstom") by way of a contribution of Siemens' mobility business to Alstom in consideration for newly issued Alstom shares (the "Transaction"). Siemens and Alstom are collectively referred to as the "Part

i2.                      THE PARTIES AND THE OPERATION

(2)     Siemens is a German corporation and the ultimate parent of the Siemens Group, with registered seats in Berlin and Munich, headquartered in Munich and listed on the Frankfurt am Main and Xetra stock exchanges. The largest shareholder of Siemens is BlackRock, Inc. with 5.93% of voting rights, followed by the State of Qatar (3.04% of voting rights) and Werner Siemens-Stiftung (3.03% of voting rights).

(3)     Siemens is active in a number of industrial areas with its mobility division offering a broad portfolio of rolling stock, rail automation and signalling solutions, rail electrification systems, road traffic technology, IT solutions, as well as other  products and services concerning the transportation of people and goods by rail and road.

(4)     Alstom is a French corporation headquartered in the Paris region and listed on Euronext Paris Stock Exchange. Alstom is active globally in the rail transport industry, offering a wide range of transport solutions (from high-speed trains to metros, trams and e-buses), personalised services (maintenance and modernisation) as well as offerings dedicated to passengers and infrastructure, digital mobility and signalling solutions. Alstom's shares are held by the Bouygues group (28%) – a diversified industrial group with activities in the construction, property, telecoms and media sectors – institutional investors (62%), individual shareholders (9%) and by Alstom employees (1%).

(5)     The Transaction concerns the acquisition of sole control of Alstom by Siemens. It involves the combination of Alstom and Siemens' mobility business, including its rail traction drives business and related activities (hereinafter referred to as the "Merged Entity").

(6)     On 26 September 2017, the Parties entered into a Memorandum of Understanding. On 23 March 2018, the Parties entered into a final Business Combination  Agreement. The Transaction was approved by shareholders at the Alstom shareholders' meeting of 17 July 2018.

(7)     Following the Transaction, the Merged Entity will remain listed on the Euronext  Paris Stock Exchange. The group headquarters and that of the rolling stock business will be located in the Paris area, while the mobility solutions business (railway signalling) will be headquartered in Berlin. The corporate name of the Merged Entity will be Siemens Alstom. Siemens will hold no less than 50.67% of the Merged Entity's shares. Bouygues will hold 13.66% while the remaining 35.67% of shares will be free float, held by other investors.

(8)     The Transaction therefore constitutes a concentration pursuant to Article 3(1)(b) of the Merger Regulation.

(9)     The stated economic rationale for the Transaction is to combine two global railway players with unique customer value and operational potential. The combination of  the Parties' experience, complementary product offerings and geographic footprints would enable the Merged Entity to compete effectively at global level in the future and respond to tomorrow's mobility challenges while addressing the increasing competitive pressure from rapidly growing (Asian) competitors, to the benefit of customers and consumers.

3.                      UNION DIMENSION

(10)    The undertakings concerned have a combined aggregate world-wide turnover of  more  than  EUR  5  000  million5  (Siemens:   EUR   83 049   million;   Alstom:   EUR 7 950 million).  Each  of  them  has  an  EU-wide  turnover   in   excess   of EUR 250 million (Siemens: EUR […]; Alstom: EUR […]), but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. The Transaction therefore has a Union dimension.

4.                      THE PROCEDURE

(11)    On 26 September 2017, the proposed Transaction between Siemens' mobility (rail) business division with Alstom was announced.

(12)    Pre-notification contacts started late September 2017. The Parties submitted a first draft of the Form CO on 4 December 2017. A second draft of the Form CO was submitted in both April and May 2018.

(13)    On 8 June 2018, the Commission received formal notification of the Transaction pursuant to Article 4 of the Merger Regulation.

(14)    Throughout its initial (Phase I) investigation, the Commission reached out to a large number of participants (competitors, customers, and other stakeholders) by  requesting information through electronic questionnaires, telephone calls and written requests for information pursuant to Article 11 of the Merger Regulation.

(15)    On 28 June 2018, a state-of-play meeting between the Parties and the Commission took place at which the Commission explained the preliminary findings from the market investigation and its preliminary conclusions.

(16)    On 13 July 2018, the Commission found that the Transaction raised serious doubts as to its compatibility with the internal market and adopted a decision to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation (the "Article 6(1)(c) Decision"). The Article 6(1)(c) Decision raised serious doubts about the Transaction in the following markets:

(1)   Rolling stock: high-speed trains, including the narrower market of very high- speed trains, in the European Economic Area ("EEA") and on a worldwide basis; mainline trains, including in the narrower markets of regional and intercity EMU trains, in the EEA and in Belgium, Germany, Denmark and the Netherlands; metros, including the narrower market of automated metros in the EEA; and, people movers, in the EEA;

(2)   Mainline signalling:

(a)   At EEA-level: mainline signalling projects combining ETCS Automated Train Protection (ATP) wayside systems, interlockings and Operation Control Systems (OCSs); mainline signalling projects combining ETCS ATP wayside systems and interlockings; ETCS ATP wayside system projects; standalone interlocking projects; ETCS On-Board Unit (OBU) projects;

(b)   At national level: ETCS ATP wayside systems and interlockings projects combined, in Belgium, Romania, Spain and the United Kingdom ("UK"); ETCS ATP wayside systems projects, in Austria, Belgium, Croatia, Denmark, Germany, Greece, Hungary, the Netherlands, Romania, Slovenia, Spain and the UK; standalone interlocking projects in Belgium, Greece, Norway, Portugal, Romania, Spain and the UK; legacy OBU projects, in Belgium; OCS projects in the UK, Denmark, Norway and Spain;

(3)   Urban signalling; CBTC signalling for metro systems, in the EEA; France, Netherlands, the UK; Amsterdam, Lille, London, Lyon and Paris; large conventional metro projects, in the EEA, France and Paris; small conventional metro projects, in France and Paris; light rail projects, in  Germany, Netherlands, Belgium, Sweden, Aarhus, Antwerp, Brussels, Rotterdam, Stockholm and Wuppertal;

(4)   Signalling products: interlocking equipment, in the UK,; track circuits  for urban use in France; and

(5)   Rail electrification: rail electrification projects, in Greece, Romania and the UK.

(17)    On 16 July 2018 the Commission, at the request of the Notifying Party, extended the legal deadline of the procedure by 20 working days pursuant to Article 10(3)(2), of the Merger Regulation.

(18)    On 26 July 2018, a state-of-play meeting took place between the Commission and  the Parties.

(19)    On 6 August 2018, the Parties submitted their written comments on the Article 6(1)(c) Decision ("the Parties' response to the Article 6(1)(c) Decision").

(20)    On 8 August 2018, the Commission adopted a decision pursuant to Article 11(3) of the Merger Regulation suspending the merger review time limit for initiating proceedings and for decisions due to the failure of the Parties to provide certain requested documents. The suspension lasted from 7 August 2018 until 4 September 2018, when the requested documents were provided.

(21)    During the in-depth (Phase II) investigation, the Commission sent numerous requests for information to the Parties, their competitors, customers and suppliers as well as to other stakeholders. The Commission collected a substantial amount of information from the Parties, including tender and bidding data and documents, as well as from third parties.

(22)    The Commission also held four technical meetings with the Parties between September and November 2018 to discuss the following areas: (i) rolling stock (high- speed, mainline and urban) (ii) mainline signalling, and (iii) urban signalling.

(23)    The Commission also granted the status of interested third person to 24 entities, comprising competitors, customers, trade unions and trade associations.

(24)    On 29 October 2018, the Commission issued a Statement of Objections. The markets in respect of which the Statement of Objections raised serious concerns were the following:

(1)   Rolling stock: high-speed trains, including the narrower market of very high- speed trains, in the EEA and on a worldwide basis (excluding China, Japan and

South Korea); regional trains, in the EEA; and steel wheel automated metros,  in the EEA;

(2)   Mainline signalling: ETCS OBU projects, in the EEA; legacy OBU projects, in Belgium; standalone interlocking projects, in the EEA and in Belgium, Croatia, Denmark, Greece, Hungary, Norway, Portugal, Romania, Spain, and the UK; ETCS ATP wayside overlay projects, in the EEA and in Belgium, Netherlands, Spain, UK, Austria, Germany, Slovenia, Bulgaria, Croatia, Czech Republic, Denmark, France, Greece, Hungary, Italy, Norway, Poland, Romania,  Slovakia, Luxembourg, Estonia, Latvia, Lithuania, Finland, Sweden, and Portugal; ETCS ATP wayside re-signalling projects, in the EEA and in the Netherlands, Romania, Spain, Belgium, Croatia, Denmark, Greece, Hungary, Norway, UK, Austria, Germany, Slovenia, France, Italy, Poland, Slovakia, Bulgaria, Czech Republic, Luxembourg, Estonia, Latvia, Lithuania, Finland, Sweden, and Portugal; interlocking equipment, in the UK; and standalone OCS projects, in the UK;

(3)   Urban signalling: metro CBTC projects, in the EEA; OCTYS projects, in Paris; and SACEM projects, in Paris; and

(4)   Rail electrification, in Greece and Romania: rail electrification overall; contact lines; contact lines – OHCL; contact lines OHCL Mainline & high-speed; traction power supply; and traction power supply –AC.

(25)    Access to file was given to the Parties via CD-ROM on 29 October 2018 and             7 November 2018 and via encrypted emails on 31 October 2018, 13 November 2018, 14 November 2018, 22 November 2018, 26 November 2018, 30 November 2018,      7 December 2018, 14 December 2018, 21 December 2018, 4 January 2019, 21 January 2019, 25 January 2019 and 31 January 2019.

(26)    On 14 November 2018, the Parties replied to the Statement of Objections ("the Parties' response to the Statement of Objections"). In addition, 14 third parties in Phase II submitted comments on the Statement of Objections.

(27)    On 29 November 2018, a state-of-play meeting took place between the Commission and the Parties.

(28)    On 23 January 2019, the Commission issued a Letter of Facts on (i) market shares and bidding data for high and very high-speed rolling stock and for mainline signalling, (ii) high and very high-speed rolling stock and (iii) mainline signalling (the "Letter of Facts"). The Parties replied to the Letter of Facts on 28 January 2019.

(29)    In their response, the Parties argue that the Letter of Facts does not enable them to effectively make their views known on the supplementary facts on which the Commission intends to base its final decision.

(30)    First, the Parties claim that the Commission has not provided it "sufficient time to digest the additional facts" and to provide observations in an effective and meaningful manner, especially when "most" of the evidence was available to the Commission already prior to adopting the Statement of Objections. Second, the Parties indicate their "doubt" as to whether their observations as presented in their response to the Letter of Facts can be "meaningfully taken into account" considering the advanced stages of the proceedings, including the fact that the Commission had submitted its draft final decision to the national competition authorities in view of the Advisory Committee meeting before the Parties submitted their observations on the Letter of Facts. Third, the Parties submit that the Commission has failed to provide sufficient context for them to understand how the additional facts as presented in  the Letter of Facts will be relied on by the Commission. The Parties claim, therefore, to be unable to verify the accuracy and relevance of the information contained in the Letter of Fact and effectively make their views known for the purposes of exercising its rights of defense.6

(31)    The Commission considers that the Parties' arguments, as presented in their response to the Letter of Facts, and summarised in recitals (29)-(30), are unfounded.

(32)    First, as regards the time granted by the Commission, the Parties were granted from 23 January 2019 until 28 January 2019 (including the extension of time to respond,  as requested by the Parties on 25 January 2019) to submit their observations on the additional facts laid down in the Letter of Facts, which covers exclusively documents and information either submitted to the Commission by the Parties themselves during the course of the investigation (in particular, updated bidding data submitted after the Commission issued its Statement of Objection, internal documents and responses to the Commission’s requests for information), third party documents (including responses to the Commission’s requests for information and minutes of conference calls between the Commission case team and third parties) to which the Parties had already been given access to in the course of the access to file, or documents which are publicly accessible online (for instance, legislation, press articles, reports by EU institutions or national governmental authorities). Therefore, the Parties were given sufficient time to take cognisance, provide their observations in their response and effectively make their views known.

(33)    Second, as regards the Parties' doubts on whether the Commission would take into account their observations in response to the Letter of Facts, these have been fully and meaningfully taken into account by the Commission. The Commission also shared the Letter of Facts and the Parties' observations in response to the Letter of Facts with the national competition authorities ahead of the Advisory Committee meeting. The Commission also, at the start of the Advisory Committee meeting, summarised the Parties' observations and explained its analysis and conclusions in relation to the arguments presented by the Parties in their response to the Letter of Facts. The Commission has therefore ensured that the national competition authorities and the Advisory Committee had all the facts at hand before issuing its opinion.

(34)    Third, as regards the alleged lack of sufficient context, the Letter of Facts includes, for each additional fact as laid down in the Letter of Facts, an explanation of the context in which each of those facts would potentially be relied on by the Commission in its final decision.

(35)    During the Phase II investigation, the Notifying Party informally presented various options for proposed remedies. On 12 December 2018, the Notifying Party formally submitted commitments.

(36)    On 17 December 2018, the Commission launched a market test on the commitments submitted on 12 December 2018.

(37)    On 9 January 2019, a first modified version of the commitments was submitted by  the Notifying Party.

(38)    On 25 January 2019, a second modified version of those commitments was submitted by the Notifying Party.

(39)    The meeting with the Advisory Committee took place on 31 January 2019.

(40)    The Final Report of the Hearing Officer was issued on 1 February 2019.

(41)    This decision only addresses the markets in respect of which the Commission maintains its objections even in light of the Parties' response to the Statement of Objections. These markets are as follows:

(1)   The market for high-speed trains, including the narrower market of very high- speed trains, in the EEA and on a worldwide basis (excluding China, Japan and South Korea), and

(2)   The following mainline signalling markets: ETCS OBU projects, in the EEA; legacy OBU projects, in Belgium; standalone interlocking projects, in Belgium, Croatia, Greece, Hungary, Portugal, Romania, Spain, and the UK; ETCS ATP wayside overlay projects, in the EEA; ETCS ATP wayside re-signalling projects, in the EEA, and interlocking equipment, in the UK.

(42)    The Commission does not maintain its objections raised in the Statement of Objections in respect of the markets other than those indicated in recital (24) for the reasons set out below, as communicated to the Parties during the proceedings:

(1)   As regards rolling stock, the Commission does not maintain its objections for regional trains and steel wheel automated metros in the EEA in view of the Parties' response to the Statement of Objections and the evidence gathered during the second phase market investigation;

(2)   As regards standalone interlocking projects, the Commission does not maintain its objections in the EEA as a whole, Norway and Denmark in view of the Notitying Party's response to the Statement of Objections and the evidence gathered during the Phase II investigation;

(3)   As regards to ETCS ATP wayside overlay projects, the Commission does not maintain its objections in the following national markets: Belgium, Netherlands, Spain, UK, Austria, Germany, Slovenia, Bulgaria, Croatia, Czech Republic, Denmark, France, Greece, Hungary, Italy, Norway, Poland, Romania, Slovakia, Luxembourg, Estonia, Latvia, Lithuania, Finland, Sweden, and Portugal, given that it has concluded that the market is EEA-wide only;

(4)   As regards ETCS ATP wayside re-signalling projects, the Commission does  not maintain its objections in the following national markets: the Netherlands, Romania, Spain, Belgium, Croatia, Denmark, Greece, Hungary, Norway, UK, Austria, Germany, Slovenia, France, Italy, Poland, Slovakia, Bulgaria, Czech Republic, Luxembourg, Estonia, Latvia, Lithuania, Finland, Sweden, and Portugal, given that it has concluded that the market is EEA-wide only;

(5)   As regards standalone OCS projects in the UK, the Commission does not maintain its objections in view of the Parties' response to the Statement of Objections and the evidence gathered during the second phase market investigation;

(6)   As regards conglomerate concerns regarding the supply of ETCS OBUs for rolling stock, the Commission does not maintain its objections in view of the Parties' response to the Statement of Objections and the evidence gathered during the second phase market investigation;

(7)   As regards urban signalling, the Commission does not maintain its objections for metro CBTC projects in the EEA as well as OCTYS and SACEM   projects in Paris in view of the commitments offered by the Notifying Party, which are capable of eliminating the Commission’s concerns; and

(8)   As regards rail electrification, the Commission does not maintain its objections for rail electrification projects in Greece and Romania in view of the Parties' response to the Statement of Objections and the evidence gathered during the second phase market investigation.

(43)    In any event, with the exception of ETCS ATP wayside overlay projects and ETCS ATP wayside re-signalling projects (recital (42) paragraphs 3 and 4),  the Commission leaves open the question whether the Transaction gives rise to a significant impediment of effective competition in  the  markets  mentioned  in  recital (42). This is because the assessment relating to these markets would not affect the compatibility of the Transaction with the internal market having regard to the maintained objections and to the inadequacy of the commitments in relation to the markets identified in recital (24). As regards ETCS ATP wayside overlay projects and ETCS ATP wayside re-signalling projects (recital (42) paragraphs 3 and 4), the Commission's final view, as discussed in Section 6, is that these markets are EEA- wide only and the significant impediment of effective competition arises at the EEA level. This implies that objections relating to ETCS ATP wayside overlay projects and ETCS ATP wayside re-signalling projects in the context of national markets cannot be maintained.

5.      HIGH AND VERY HIGH-SPEED ROLLING STOCK

5.1. Introduction

(44)    Both Siemens and Alstom have a broad product portfolio covering essentially all types of rolling stock.

(45)    Siemens divides its products in high-speed and intercity trains, commuter and regional trains, passenger coaches, metros, trams and light rail, automated people movers, and locomotives.7 Alstom makes a distinction between mainline and urban trains. Among mainline trains, it includes its high-speed train, regional train and passenger and freight locomotive products.8 It counts among urban trains its metro, tramway, tram-train and light rail vehicle ("LRV") and suburban train products.9

(46)    The Parties' activities in the EEA overlap in high-speed, mainline (regional trains) and urban trains (trams/LRV, metro, people movers (usually used to or within airports)), as well as locomotives and passenger coaches. The Parties' activities overlap or create vertical links also in rolling stock components, spare parts and maintenance services. In the wider mobility market, the Parties are also active in the electric bus market with e-bus vehicles (Alstom) and e-bus charging solutions (Siemens and Alstom).

5.2.   Market definition

5.2.1.           Product market definition

5.2.1.1.             The Notifying Party's views

(47)    The Notifying Party considers that the relevant market should comprise single-deck trains capable of speeds equal to and above 250 km/h.

(A)                  Market segmentation according to maximum speed

(48)    The Notifying Party considers that all high-speed trains constitute a single market, and should not be segmented on the basis of speed (high-speed and very high-speed).

(49)    First, the Notifying Party considers that the appropriate speed threshold for "high- speed" trains can be defined as 250 km/h because (i) it is the threshold used by the Parties internally; (ii) it is also used in Directive 2008/57/EC of 17 July on the interoperability of the rail systems within the Community; (iii) trains running at those speeds are subject to specific technical requirements under the applicable technical specifications for interoperability ("TSIs"); and (iv) suppliers have separate platforms10  for those trains.

(50)    Second, the Notifying Party submits that all trains with speeds of 250 km/h and above should be considered high-speed, including rolling stock with a top speed reaching but not exceeding 250 km/h. This is justified, according to the Notifying Party, in light of specific TSI requirements applying from 250 km/h. Furthermore,  the Parties note that suppliers market their 250 km/h platforms as high-speed trains.11

(51)    Third, the Parties do not consider that very high-speed trains form a separate market. It considers that all high-speed trains constitute a single market regardless of their maximum operating speed because (i) there are no material regulatory requirement specific to certain speeds above 250 km/h; (ii) there is no industry-wide standard or speed threshold distinguishing "very high-speed" trains; (iii) there are no material technical barriers to developing very high-speed trains for manufacturers which already have a high-speed platform; (iv) speed requirements vary from customer to customer; and (v) trains capable of running at speeds above 300 km/h may compete in tenders for trains running on conventional tracks. In particular, it claims that most suppliers market their high-speed trains via a single platform, which covers both high and very high-speed requirements, and that suppliers that maintain different platforms have reasons for keeping separate lower high-speed platforms that are unrelated to the cost of adapting these platforms to very high-speeds.12

(B)                  Market segmentation according to the number of floors (single- vs. double-deck trainsets)

(52)    In its Form CO, the Notifying Party explained that, although suppliers typically have different platforms for single and double-decker trains, customers rarely specify the number of floors in tender specifications and instead have capacity and comfort requirements. In this regard, although double-deckers offer more capacity, their comfort level is perceived to be lower due to the necessary use of staircases and longer boarding/off-boarding times. Therefore, the Notifying Party considered that the relevant market comprised all high-speed rolling stock, regardless of the number of floors, because single- and double-deck trainsets compete against one another.13

(53)    In the Parties' response to the Statement of Objections, the Parties defended the opposite view, arguing that single- and double-deckers constitute separate product markets. According to the Parties' response to the Statement of Objections, separate markets were warranted in light of (i) certain customers rejecting double-deck  trains,

(ii) the fact that Alstom is the sole supplier of double-deck trains and (iii) the "niche" nature of the double-deck high-speed train market.14

5.2.1.2.             The Commission's decisional practice

(54)    In previous cases, the Commission found that high-speed trains, defined as trains designed to travel long distances at speeds of more than 250 km/h on conventional tracks, constitute a separate product market. The Commission also noted that in  many instances, dedicated tracks are used which allow for very high-speed travel (usually between 270 km/h and 300 km/h), but has not determined whether very high-speed trains should be distinguished from high-speed trains for the purposes of defining the relevant market.15

5.2.1.3.             Results of the market investigation and the Commission's assessment

(A)                  Distinction between intercity and high-speed trains

(55)    As explained in recital (54), the definition of the relevant market, as set in the Commission's prior decisions, covers "trains designed to travel long distances at speeds of more than 250 km/h on conventional tracks".16 Under this definition, trains designed to travel at speeds up to and including 250 km/h should not be considered high-speed trains for purposes of the competitive assessment. In prior decisions, trains with a maximum speed of 250 km/h would therefore have fallen in the "intercity" rolling stock category, which comprised mainline trains capable of travel between 160 and 250 km/h.

(56)    However, from a regulatory standpoint, rolling stock that reach a maximum design speed higher or equal to 250 km/h must meet specific TSI specifications, including items such as the type of end coupling, axle bearing condition monitoring, and emergency braking.17 Accordingly, several high-speed train manufacturers have confirmed that the cut-off point distinguishing intercity from high-speed trains is  (and includes) 250 km/h.18

(57)    Therefore, on the basis of regulatory and technical differences, trains that reach a maximum design speed equal to or higher than 250 km/h should be considered high- speed trains.

(58)    This definition is also reflected in industry studies. The International Union of Railways ("UIC") thus "considers a commercial speed of 250 km/h to be the principal criterion for the definition of [high-speed rail]".19

(59)    As a result, the high-speed rolling stock market includes trains capable of a  maximum speed equal to or higher than 250 km/h. The Commission notes that all high-speed trains in operations in the EEA are self-propelled, as no locomotives are TSI-certified for high-speed operations.20

(B)                  Distinction between high and very high-speed trains

(60)    The Commission’s prior decisions have not adopted definitive conclusions in relation to a possible sub-segmentation of the relevant market distinguishing very high-speed trains. As explained in recital (50) the Notifying Party argues that distinguishing a separate market for very high-speed trains would not be warranted. However, several factors justify distinguishing rolling stock capable  of  speeds  equal  to  or  above  300 km/h.

(61)    First, a large portion of respondents to the Phase I market investigation consider that very high-speed trains should be considered as a separate market due to (i) their operational speed capacity, which allows for travel at 300 km/h or above, (ii) the requirement that dedicated lines be used to operate them, and (iii) the fact that specific technical requirements and price differences exist compared to other types of trains.

(62)    From the demand-side, major very high-speed lines operators such as […] and […] consider that very high-speed rolling stock constitute a separate relevant market in light of different conditions of exploitation making other rolling stock inapt for operations on tracks dedicated to very high-speeds. […] indicates that tracks  allowing for very high-speed travel have specific characteristics (curvature radius,  tilt, catenary construction, signalling, etc.) such that they only allow for the operation of very high-speed rolling stock.21

(63)    Other customers, including […], […], […] and […] consider that very high-speed rolling stock need not be distinguished from high-speed rolling stock. Operators located […] consider that this distinction is not […]* because other type of rolling stock can operate on Italian very high-speed tracks. […], which is in the process of procuring very high-speed rolling stock, considers that the market encompasses both high and very high-speed trains, but acknowledges that specific challenges must be overcome to operate very high-speed trains.22

(64)    Nevertheless, explanations put forward by […], […], […] and […] do not support  the conclusion that high and very high-speed rolling stock are substitutable. On the contrary, most customers operating trains on dedicated tracks for very high-speed travel have indicated that, when determining the terms of tenders for procuring rolling stock, they specifically require trains capable of very high-speeds, such that trains not capable of very high-speeds would not constitute acceptable bids.23 All customers operating rolling stock on very high-speed infrastructures specifically request trainsets capable of maximum speeds in the 300-360 km/h range.24

(65)    This specific demand for very high-speed rolling stock results from a deliberate choice to invest in infrastructures that allow speeds that cannot be reached on conventional tracks. Specific technical requirements thus apply to infrastructure allowing for very high-speeds,25 which entail higher costs than other type of rail. In a 2018 report on the European high-speed rail network (the "2018 ECA Report"), the European Court of Auditors has assessed that "[t]he cost of a line increases proportionally with the design speed, and infrastructure capable of handling very high-speed operations (300 km/h or more) is particularly costly".26

(66)    Very high-speed lines are large public infrastructures, for which construction relies on major policy decisions and involve substantial public spending.27 For  example,  the British Government foresaw investing more than GBP 16 billion in order to build HS2’s very high-speed rail network.28 Such projects specifically aim at reducing journey times for rail travel in response to the growth in demand for journeys on long-distance rail service.29 They do so in order to achieve the long term economic benefits associated with improved and faster connectivity. As explained by the  British Government, "[i]f we are to build a new railway, there is a choice between a conventional railway and a new high speed line [here allowing for operations at a maximum (very high) speed of 360 km/h]. A new high speed line would cost 9%  more than a conventional railway and, in certain respects, would have higher environmental costs, but the difference in price and the relatively higher environmental impact is more than outweighed by the economic benefits to be gained

 from radically reducing journey times and improving connectivity between our main cities".30

(67)    Investments in very high-speed dedicated tracks are therefore incurred specifically in order to achieve service speeds that only very high-speed trains can achieve. This explains why, in the Phase I market investigation, all operators active on very high- speed rail networks have confirmed that they require very high-speed trains when procuring rolling stock. Therefore, from the demand-side, customers operating trains for services on very high-speed rail networks have a specific demand for very high- speed rolling stock.

(68)    From the supply-side, most competitors ([…], […] and […]) consider that high and very high-speed rolling stock belong to separate relevant markets due to different performance and technical requirements.31 [...] indicates that it uses the same  platform (the "[…]") for all projects above 250 km/h.32 However, it has only sold this platform for very high-speed operations and never for travel below 300 km/h in the EEA or in the rest of the world.33

(69)    Second, contrary to the Notifying Party's assertion, 300 km/h is the operating speed commonly understood in the industry to distinguish high-speed from very high-speed rolling stock. That understanding is reflected in UNIFE's 2016 World Rail Market Study, which explains that "[t]he operational speed limit separating very high speed trains from high speed trains is set at 300 kph. Trains operating at speed equal to or beyond this limit are considered very high speed (VHS)".34 Similarly, a UIC 2018 report on High Speed Rail defines "high speed rail" as starting at 250 km/h and also emphasises the specific technical characteristics applying to trains operating from  300 km/h (braking, acceleration), noting that "[t]here are not many rolling stock manufacturers producing trainsets that can run at 300 km/h or more".35

(70)    Alstom’s corporate communication also reflects the understanding that very high- speed trains travel at speeds starting from 300 km/h, repeatedly describing "Alstom and Very High-speed" by claiming that "Alstom manufactured 50% of the trains that nowadays travel across  the whole world at over  300 kph".36  Although    the  Parties argue that such press releases merely constitute "aspirational market statements",37 the statements contained therein do illustrate Alstom’s public description of its own activities and how the company defines very high-speeds.

(71)    Finally, this approach is also reflected in other independent evaluations of the  market. Thus, in the 2018 ECA Report, "very high-speed services" are defined as those "operating at 300 km/h or more".38

(72)    Third, respondents to the market investigation have also confirmed that 300 km/h constitutes the threshold that distinguishes "high" from "very high" speeds.

(73)    Although, as the Notifying Party argues, suppliers like Bombardier or CAF market a platform which they can manufacture for various speed requirements,  other suppliers, like Siemens, Alstom and Talgo, have different platforms for high and  very high-speeds. The manner in which rolling stock manufacturers choose to organise their product lines cannot, therefore, be determinative for the purpose of defining the relevant market.

(74)    Furthermore, rolling stock sales in the EEA and the rest of the world (excluding China, Japan and South Korea) in at least the past 10 years have either been sales of trains travelling at a maximum speed of 250 km/h or sales of trains reaching 300  km/h or more.39 Although, in theory, all trains with a maximum speed ranging from 250 km/h to 299 km/h are considered to fall into the "high-speed" category, in practice there have been no trainsets sold with maximum speeds above 250  and below 300 km/h. This suggests that there is no continuous chain of substitutes between high and very high-speed rolling stock. On the contrary, the absence of any sales of trains with a maximum speed above 250 and below 300 km/h shows that  high and very high-speed rolling stock belong to separate product markets.

(75)    Fourth, there exists an express specific demand for very high-speed rolling stock. That demand is expressed in tender specifications requiring trains capable of being operated at 300 km/h or above. Accordingly, and contrary to the Notifying Party's argument, high-speed trains cannot compete with very high-speed trains. The majority of competitors who expressed an opinion thus consider that suppliers cannot competitively bid for a high-speed tender (i.e., for rolling stock running solely on conventional tracks) by offering a very high-speed train and vice-versa.40

(76)    Although there are examples of very high-speed platforms having been sold to operate on high-speed lines, these sales were made in anticipation of the completion of the installation of very high-speed infrastructures allowing for very high-speed operations. […].41 It follows that, in the case of procurement decisions aimed at operating rolling stock to be reconfigured to very high-speeds in anticipation of the availability of the appropriate rail infrastructure, rolling stock incapable of reaching 300 km/h does not exercise a competitive constraint on very high-speed rolling stock.

(77)    Fifth, the results of the market investigation show that, in order to achieve speeds equal to or above 300 km/h, trains require higher performance and technical developments, and abide by stricter safety requirements.

(78)    Indeed, trains capable of running at speeds equal or higher than 300 km/h have to meet specific regulatory requirements.42 The Parties argue that TSIs do not give prominence to the 300 km/h threshold.43 This is correct, in the sense that the applicable regulations define specific requirements for various speed levels. Nonetheless, the Parties do list several TSIs that contain specific rules applicable from 300 km/h and above.44 These rules contain specific performance levels to be met by trains travelling at or above 300 km/h, for example in relation to the design of traction systems or emergency braking. Although the relevant regulations do not expressly indicate the 300 km/h thresholds as more "prominent" than others, given that it appears within lists defining different values corresponding to various speed levels, those regulations set out certain requirements applying specifically to rolling stock travelling at 300 km/h.

(79)    Furthermore, as explained by [...] in the course of the Phase II market investigation, 300 km/h-specific regulatory requirements do entail particularly demanding technical features. Thus, for example, in relation to the design of traction systems, [...] indicated that, as a result of specific regulatory requirements, there was a "huge reduction of the adhesion coefficient to be considered in the design of the traction system and architecture for speeds of 300 km/h or higher".45 Similarly, [...] explained that "the requirements for brakes at these speeds over 300 km/h require much higher performance in terms of thermal behaviour of the materials both for the pads and the discs. The most advanced technology needs to be used to enable stopping the train from such very high speeds".46 The Parties have not contradicted these  representations of the challenges posed by the applicable rules. Therefore, the existence of specific requirements applicable to rolling stock travelling at 300 km/h  or more lends support to the results of the market investigation.

(80)    Sixth, the majority of competitors indicate that existing high-speed platforms cannot be easily adapted to run at very high-speeds. They consider that such adaptation would require significant time and cost, although estimates vary between respondents. All competitors also consider that such adaptation would require wide ranging technical modifications and obtaining a new regulatory authorisation.47

(81)    In practice, no supplier has ever attempted such adaptation as they do not consider that such upgrade would be economically viable. As [...] explains, "adapting a HS train to run at very high-speeds is not feasible in terms of time and costs as the complexity of that adaptation is such that it implies the development of a  new train".48

(82)    In contrast, the Notifying Party claims that such an upgrade would not involve particular technological difficulty. As evidence, the Parties explain that Siemens supplied the […].49 However, the Velaro is Siemens' very high-speed platform and therefore does not constitute an "upgrade" of a trainset previously incapable of reaching very high-speeds. On the contrary, the fact that a rail operator found it more economic to operate a very high-speed platform at lower speeds in order to be later reconfigured to reach very high-speed confirms the results of the market  investigation which suggest that upgrading a high-speed platform to very high- speeds is not viable.

(83)    […].The Pendolino was initially developed in the 1970s as a platform able to tilt into curves in order to reach higher speeds than non-tilting trains. It has since been sold as a high-speed platform, capable of reaching a maximum speed of 250 km/h.

(84)        […].50[…].

(85)        […].51[…].52

(86)        […].53[…].54[…].55

(87)        […].56[…].57[…].

(88)                                  As a result, both supply and demand-side considerations, confirmed sales and technical requirements show that high-speed rolling stock is not substitutable for  very high-speed rolling stock. Prior examples of substitution have involved very high-speed rolling stock used for operations at speeds below 300 km/h, however with a view to be operated to very high-speeds upon the construction of adequate infrastructure.

(89)                                  However, the Commission considers that it is not necessary to conclude on the precise delineation of the relevant product market for the assessment of the effects of the Transaction as it raises competition issues under both conceivable definitions.58 The Transaction's competitive effects will therefore be examined on the overall market for high and very high-speed trains and on the separate market for very high- speed trains.

(C)                  Lack of distinction in relation to traction system or architecture

(90)                                  The results of the market investigation confirm that no market segmentations on the basis of traction system or architecture is warranted.

(91)                                  With respect to traction systems, the market investigation has confirmed that there exist  two  main  concepts,  called  "distributed  traction"  (which  refers  to    traction equipment distributed in several parts of the trainset) and "concentrated traction" (which refers to traction equipment located in a power cars at each end of the trainset). However, the Notifying Party does not suggest that the relevant market should be segmented on that basis.

(92)                                  Similarly, competitors have recognised that traction systems constitute a differentiating factor when competing in tenders.59 However, competitors have indicated that both types of traction compete against one another in tenders and the main suppliers rely on one system or the other.60

(93)                                  With respect to architecture, there exist two main types of architecture, called "articulated" and "non-articulated" (or "conventional"). An articulated architecture allows for shorter and lighter trainsets, offering better comfort and reduced energy consumption, whereas non-articulated trainsets allow for more operation flexibility (because cars can be separated) and increased capacity. However, the Notifying Party does not suggest that the relevant market should be segmented on that basis.

(94)                                  The results of the market investigation confirm the Notifying Party's position and do not support further segmentation of the relevant market. Competitors consider that the Parties' product offering compete closely, despite having different architectures.61 Customers concur, confirming that, despite different traction and architecture  choices, the main suppliers' "product offerings can be considered to be broadly comparable across the market in terms of achievable performance".62

(95)                                  As a result, no segmentation on the basis of the type of traction or train architecture  is warranted for the purpose of defining the relevant market.

(D)                  Lack of distinction in relation to the number of floors

(96)                                  Alstom is the sole supplier of double-deck very high-speed rolling stock, a product initially developed for SNCF.63 According to the Parties' response to the Statement of Objections, double-deckers constitute a separate, "niche" market, because they are sometimes explicitly or implicitly rejected or required in tender specifications as in the 2013 TCDD tender (which required a single-deck trainset), the ongoing HS2 tender (which implicitly prevents offering a double-decker) and the 2016 SNCF Innovation Partnership tender (which implicitly required a double-deck trainset).

(97)                                  Alstom's product range includes both single- and double-deckers and Alstom competes in tenders with both solutions. From a technical point of view, Alstom's double-deck platform increases each car's seating capacity in a platform using concentrated traction and an articulated architecture. The double-deck structure thus allows Alstom's platform to compensate capacity limitations inherent in articulated trainsets with concentrated traction, as indicated in recital (92) above.

(98)                                  There are few examples of explicit or implicit restrictions in relation to double- deckers. However, in most calls for tenders, there is no specific demand for single- or double-deckers. The Notifying Party explained in its Form CO that "customers will rarely include specific criterion for single or double-deckers in their tenders but will instead have capacity and comfort requirements".64 The Notifying Party underlined that the differences between single- and double-deckers are not fundamental and mainly relate to seating capacity and passenger comfort.65

(99)                                  In the 2008-2018 period, […]. Siemens' internal documents also show […]66[…].

(100)                           In response to the Letter of Facts, the Parties claim that […].67[…]. Moreover, the Parties' claim directly contradicts the statement in the Form CO that "customers will rarely include specific criterion for single or double-deckers in their tenders but will instead have capacity and comfort requirements".68

(101)                           The Parties' response to the Letter of Facts also supports the indication, in the Form CO, that double-deckers do compete with single-deckers, and exercise particularly significant competitive pressure in tenders with important capacity requirements. […].69

(102)                           The existence of a close competitive relationship, and therefore substitution, between Alstom’s double-deck platform and Talgo’s single-deck platform is also  supported by Alstom’s internal documents. […]70[…].

(103)                           The Parties further recognise in the response to the Letter of Facts that the 2016 Renfe’s capacity requirements and technical features "[…]".71 Therefore, the Parties' response to the Letter of Facts shows that single- and double-decker platforms are substitutable and compete particularly closely in tenders with high capacity requirements. This confirms the view in the Form CO that technical differences between single- and double-deckers are limited and do not have a bearing on the degree of substitutability.

(104)                           As a result of the above analysis, no segmentation on the basis of the number of floors is warranted for the purpose of defining the relevant market.

5.2.1.4.             Conclusion

(105)                           For the reasons set out in Section 5.2.1 and in light of the results of the investigation, the Commission considers that trains capable of speeds equal to and above 250 km/h ("high and very high-speed trains") should be considered as a separate product market, distinct from intercity trains which are incapable of delivering the same service speed.

(106)                           In light of the considerations laid out above in recitals (60) to (81), the Commission also considers that the market could be further sub-segmented on the basis of speed, thus distinguishing trains capable of speeds equal to or above 300 km/h ("very high- speed trains") as a narrower relevant market. However, the question whether the market for high and very high-speed trains should be further segmented on this basis can be left open for the purposes of this Decision as the Transaction raises competition concerns on both conceivable market definitions. The Commission   wil therefore carry out its competitive assessment on the overall market for high and very high-speed trains and on the narrower market for very high-speed trains.

5.2.2.           Geographic market definition

5.2.2.1.             The Notifying Party's views

(107)                           In respect of the geographic market for high-speed rolling stock, the Notifying Party considers that the market should be considered worldwide. The Parties describe the market as (i) being characterised by large and infrequent orders which attract a group of suppliers active globally, (ii) with most future demand emanating from countries outside of the EEA (noting that 56% of all high-speed lines under construction are in the rest of the world).72

(108)                           However, the Notifying Party considers that the relevant market should exclude China, Japan and Korea, due to the following insuperable barriers to entry into those territories:73

(1)                        Chinese customers require local partnerships with Chinese companies as a prerequisite for their tenders. Chinese law, however, does not allow foreign undertakings to be in control of such joint ventures. According to the Notifying Party, "absent control, partnering with local players is not commercially attractive for foreign suppliers".74 In addition, a State-delivered licence is required to participate in rolling stock tenders. […]. To the best of the Parties’ knowledge, Bombardier is currently the licensed foreign supplier operating in the Chinese market through a joint venture with CRRC in which it is a non- controlling stakeholder;

(1)                      In Japan, the situation is similar. The Notifying Party notes that foreign suppliers are excluded from the Japanese market and represent approximately 0.25% of the overall Japanese rolling stock market. According to the Notifying Party, "[t]he existence of firmly established domestic suppliers, which have provided the Japanese Shinkansen in consortia for decades, and political resistance including from the incumbent rail operators, justify excluding Japan from the worldwide market";75

(2)                      In Korea, the Notifying Party observes the "limited involvement from foreign suppliers", with imports representing a small part of the Korean rolling stock market. Furthermore, according to the Notifying Party, "[d]espite initial high speed trains being introduced by Alstom, the existence of a firmly established domestic supplier, Hyundai Rotem, and political resistance including from the incumbent rail operator justify excluding Korea from the worldwide market  and political resistance to foreign suppliers justify excluding South Korea from the worldwide market".76

(109)      […].77

5.2.2.2.             The Commission's decisional practice

(110)                            In previous decisions, the Commission did not conclude on the geographic scope of the market for high-speed trains. In Bombardier/ADtranz, despite the existence of a trend towards wider than national markets, the Commission did not reach a final  view on the market's geographic scope given the significant costs incurred by rolling stock suppliers due to the lack of harmonisation.78

(111)                            In Alstom Holdings/Areva T&D, the Commission noted that the main rolling stock suppliers' EEA-wide offering, EU rules and inter-Member States rail projects supported the view that the market may be EEA-wide. Nonetheless, according to the results of the market investigation conducted in that case, the market may be worldwide, due to the fact that major suppliers operate on that basis and compete for infrequent large orders. However, the Commission did not reach a final conclusion  on market definition.79

5.2.2.3.             Results of the market investigation and the Commission's assessment

(A)                 EEA-wide dimension

(112)                            The majority of respondents to the market investigation consider that the relevant markets for high and very high-speed trains is EEA-wide, in light of (i) different and more stringent technical requirements distinguishing the EEA from the rest of the world, (ii) the participation of a different set of competitors when bidding in calls for tenders within the EEA compared to the rest of the world and (iii) price differences due to additional costs associated with EEA-specific standards.

(113)                            First, in relation to market size and technical standards, the vast majority of  customers consider that the relevant market is EEA-wide due to specific technical requirements.80 Among suppliers, [...], […] and […] consider that the market is worldwide81 but recognise nevertheless that high and very high-speed rolling stock operated solely outside of the EEA cannot be operated within the EEA absent major adaptation (requiring significant redesign costs and time).82 Contrary to the Notifying Party's argument, EEA-specific technical requirements do constitute a barrier  to entry. […] thus indicated that adapting […] high-speed platforms to the EEA would require significant costs and time in design changes and TSI certification,83 and that  it is overall very difficult to adapt a high-speed platform operated outside of the EEA to customers located within the EEA.84

(114)                            Second, the majority of competitors report that they face a different set of competitors when bidding for high and very high-speed contracts within the EEA  and in the rest of the world. They indicate that all major global high-speed rolling stock suppliers (most of which are EEA-based companies) are present in the EEA, except   for   Asian   suppliers   which   are   absent   from   the   EEA.85    The  Parties acknowledge that the absence of Asian suppliers from the EEA can be explained by these players' focus on their home markets and lack of interest in the EEA-market  due to existing significant competition.86

(115)                            Several respondents have also indicated that national rail operators in certain EEA Member States tend to procure high-speed rolling stock from domestic suppliers, which negatively impacts non-domestic suppliers' probability of winning tenders. Nevertheless, the results of the market investigation show that EEA-based suppliers do compete on an EEA-basis despite national specificities.87

(116)                            Third, all competitors who expressed an opinion explained that prices for the same type of high-speed rolling stock differ significantly between customers located in the EEA and those located in the rest of the world, due to additional costs associated  with EEA-specific standards.88

(117)                            Fourth, the majority of respondents confirm that TSIs have contributed to harmonising authorisation requirements within the EEA, although most respondents also note the persistence of different national authorisation standards.89

(118)                            In light of these elements, the relevant markets for high and very high-speed rolling stock can be defined as at least EEA-wide.

(B)                  Switzerland

(119)                            The Notifying Party argues that even if the Commission were to define an EEA-wide market, Switzerland should be included due to (i) the similarity in competitors bidding for contracts, (ii) geographic vicinity and interconnections, and (iii) the existence of similar technical rules.90

(120)                            First, as a preliminary point, it is unclear whether any railways or trains operating in Switzerland can be qualified as "high-speed" under the definition retained in the present Decision. […], explained that "[…]".91 […].92

(121)                            Similarly, the Swiss Federal Railways ("SBB") explains that "[d]ue to Switzerland's closely meshed network and the topography of the country it is simply not economical to implement the European standard with speeds of over 230 km/h on the Swiss network and this will not be a topic for discussion in the near future. The high- speed standard for Switzerland lies between 160 and 200 km/h".93

(122)                            SBB nevertheless purchased 250 km/h-capable rolling stock in several instances in the past and can therefore qualify as a "high-speed" rolling stock customer.

(123)                            Second, speed limitations notwithstanding, other rolling stock suppliers consider that the relevant geographic market for high-speed rolling stock should encompass the EEA and Switzerland. Thus, [...] considers that "Switzerland is following the same norms as all other countries in Europe. For example, high-speed rolling stock authorizations are organised at the EEA level and Switzerland".94

(124)                            Third, with respect to tender participation, the Notifying Party correctly indicates that a number of the main European high-speed rolling stock suppliers, including the Parties along Talgo and Stadler, competed for the 2014 SBB tender. Therefore, no barriers to entry impeded the ability of EEA-based competitors to enter the Swiss market.

(125)                            Fourth, Switzerland is interconnected to the Union and it is involved in EU railway policies and rulemaking. It is part of a group of representatives of the Heads of State or Government established to assist the European Council in implementing trans- European networks in transport and energy. In 1992, the Union and Switzerland entered into an agreement to construct railway infrastructure connected to the EU network.95 Finally, the Commission has recognised that Switzerland applies rules equivalent to those in the EU in the areas of railway interoperability and railway safety and has allowed Switzerland to participate in the EU Agency for Railways ("ERA").96

(126)                            In light of (i) the results of the market investigation, (ii) Switzerland's adoption of equivalent rules and participation in the EU railway regulatory framework and (iii) the absence of barriers to entry for EEA-based suppliers, the impact of the Transaction on the EEA market will include Switzerland.

(C)                  The rest of the world

(127)                            Respondents to the Phase I market investigation have confirmed that the market for high and very high-speed rolling stock is characterised by infrequent and  large orders. Sales data provided by the Notifying Party shows that, […],97 EEA-based suppliers and Bombardier are active in the rest of the world as well, which confirms the Notifying Party's argument that all major suppliers operate on a worldwide basis.

(128)                            In addition, as noted by the Parties, demand outside of the EEA is expected to grow significantly in the next 5 to 8 years. As explained in recitals (281) to (290) below, due to the development of high and very high-speed rail infrastructures outside of the EEA, […]. As other regions develop their infrastructures, the Notifying Party notes that certain non-EEA countries appear to adopt EU regulatory standards in their own calls for tenders, demanding TSI-compliant rolling stock.

(129)                            When considering the worldwide market, the market investigation has confirmed the Notifying Party's view that insurmountable barriers impede the entry of foreign suppliers in China, Japan and South Korea:98

(1)                        in China, barriers to entry include (i) rules under which only Chinese majority- owned companies, holding the full ownership of intellectual property ("IP") rights required for the project’s execution, are allowed to bid for    rolling stock contracts; (ii) the direct award of contracts to domestic suppliers; (iii) the requirement that companies be licensed to bid for contracts, under no pre- defined critera, effectively resulting in licenses only granted to Chinese- controlled company; (iv) public procurement rules requiring local production;

(2)                        in Japan, barriers to entry include (i) a clause allowing Japan to circumvent the WTO's Agreement on Government Procurement (which Japan joined in 1994) in the rail sector for reasons of "operational safety", which has been used to prevent foreign firms from bidding in procurement contracts and avoid the publication of open tenders; (ii) limited open procurement; (iii) discriminatory and complex procurement rules de facto benefiting local companies;

(3)                        in South Korea, barriers to entry include (i) tendering procedures tailor-made for the domestic industry and lacking transparency for foreign suppliers; (ii) government backing of Hyundai-Rotem; (iii) requirements in relation to licensing and technology transfers; (iv) the express exclusion of EU suppliers from tenders until 2015.

(130)                            As a result, with the exception of Bombardier's participation in a CRRC-controlled joint venture in China and Hitachi-Ansaldo in Japan, no EEA-based supplier has sold high-speed trains in China, Japan or South Korea at least over the past 10 years. In particular, suppliers have confirmed being unable to sell rolling stock independently in China, explaining that all procurement is reserved to CRRC.

(131)                            Competitors have indicated that certain of these barriers may, in time, be relaxed in Japan, as a result of the 17 June 2018 EU-Japan Economic Partnership Agreement, and in South Korea, as a result of the end of the express ban on EEA-based suppliers since 2016. Nonetheless, suppliers unanimously consider that the market situation is not expected to change in the foreseeable future.99

(132)                            No country other than China, Japan and South Korea has been identified in the market investigation as presenting insurmountable barriers to entry.

5.2.2.4.             Conclusion

(133)    For the reasons set out in Section 5.2.2 and in light of the results of the investigation, the Commission considers that the relevant geographic markets for both high and very high-speed trains are at least EEA-wide and include Switzerland. In light of the worldwide activities of non-Asian suppliers, the Commission cannot exclude that the relevant markets are broader and cover the rest of the world, excluding China,100 South Korea and Japan. In any event, the Transaction will cause a significant impediment to effective competition regardless of the precise geographic market definition.

5.3.  Competitive assessment

5.3.1.   Framework for the competitive assessment

5.3.1.1.   General principles

(134)                            Under Article 2(2) and (3) of the Merger Regulation, the Commission must assess whether a proposed concentration would significantly impede effective competition in the internal market or in a substantial part of it, in particular through the creation or strengthening of a dominant position.

(135)                            In this respect, a merger may entail horizontal and/or non-horizontal effects. Non- horizontal effects are those deriving from a concentration where the undertakings concerned are active in different relevant markets.

(136)                            As regards the assessment of horizontal overlaps, the Commission guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings101 (the "Horizontal Merger Guidelines") distinguish between two main ways in which mergers between actual or potential competitors on the same relevant market may significantly impede effective competition, namely non-coordinated and coordinated effects. Non-coordinated effects may significantly impede effective competition by eliminating important competitive constraints on one or more firms, which consequently would have increased market power, without resorting to coordinated behaviour. In that regard, the Horizontal Merger Guidelines consider not only the direct loss of competition between the merging firms, but also the reduction in competitive pressure on non- merging firms in the same market that could be brought about by the merger.

(137)                            The Horizontal Merger Guidelines list a number of factors which may influence whether or not significant non-coordinated effects are likely to result from a merger, such as the large market shares of the merging firms, the fact that the merging firms are close competitors, the limited possibilities for customers to switch suppliers, or the fact that the merger would eliminate an important competitive force. Not all of these factors indicated in the Horizontal Merger Guidelines as relevant to the  analysis of non-coordinated effects need to be present to make significant non- coordinated effects likely. In addition, the list of factors is not exhaustive.

(138)                            The extent of closeness of competition between the merging parties is one of the factors relevant for the analysis of the likelihood of significant non-coordinated effects of a merger.102 The Horizontal Merger Guidelines clearly provide for closeness of competition to be interpreted as a matter of degree in the assessment. According to the Horizontal Merger Guidelines, "the higher the degree of substitutability between the merging firms' products, the more likely it is that the merging firms will raise prices significantly".103

(139)                            The same concept is set out in paragraph 17 of the Horizontal Merger Guidelines, according to which a merger may raise competition concerns based on "the extent to which the products of the merging parties are close substitutes". Both wordings set out a relationship between the degree of substitutability of the products of the merging parties and the likelihood and seriousness of competition concerns raised by the proposed merger.

5.3.1.2.             Calculation of market shares and analysis of bidding data

(140)                            In prior cases involving industries where orders are infrequent, the Commission has considered that market shares should be analysed over several years.104 At the same time, as stated in paragraph 15 of the Horizontal Merger Guidelines, "changes in historic market shares may provide useful information about the competitive process and the likely future importance of the various competitors, for instance by  indicating whether firms have been gaining or losing market shares".

(141)                            In the present case, the Parties and their competitors' market shares have been examined over a 10 to 11 years (2008-2018) period.105 This both limits the distorting impact of infrequent tendering for projects and enables the analysis of historical changes or permanence of competitive positions over a meaningful period of time.

(142)                            The Notifying Party argues that historical market shares are not determinative for the competitive assessment because calculating market shares on the basis of sales over the 2008-2018 period overstates the Parties' position and ignores recent  developments more predictive of post-merger market dynamics. Among these recent developments, the Parties claim that their market share in high and very high-speed trains has diminished and that their competitors' position, most notably Stadler's, has increased.106 The Parties also observe that tender participation has increased in the past few years.107 The Parties therefore argue that the time period of the assessment  of market shares should be shorter and focus on the last 5 years in order to reflect the more recent development of competition in high and very high-speed rolling stock.

(143)                            The Commission therefore conducts its assessment on the basis of market shares calculated over the 2008-2018 and 2013-2018 periods, respectively.

(144)                            The Parties' and their competitors' positions, as well as the extent of rivalry between different suppliers and the loss of competition caused by the Transaction are also assessed using bidding data provided by the Notifying Party.108

(145)                            The Notifying Party provided a Consolidated Project List ("CPL") that consists of a comprehensive list of tender procedures that took place, to the best of the Parties' knowledge, over the period 2007-2018.109 The CPL includes both tenders in which either Siemens or Alstom participated, as well as the tenders in which neither participated. It provides details of the different tenders, lists other bidders and winners. In the case of awards to consortia, it allocates the related order intakes to the different consortia members.

(146)                            The Commission performed its bidding analysis on the basis of so-called "contestable"  (competitive)  tenders.  The  information  regarding  the  contestabilit status of each tender was provided by the Notifying Party. The Notifying Party defined a tender as contestable if, to the best of its knowledge, the procedure was open to competition.110 Other awards were designated as "non-contestable" and, unless indicated otherwise, were not used for the bidding analysis.111

(147)                            Market shares have been calculated on the basis of total "order intake", which represents the entire value of the rolling stock order to the supplier at the time the order is placed. As explained by the Notifying Party, order intakes are commonly used by the industry to calculate market shares.112 They include orders from non- contestable tenders, as further explained in recitals (207) to (229).

(148)                            The bidding analysis presented in this Decision is based on the latest version of the CPL provided by the Parties. For rolling stock the data was received on 16  November 2018, in response to the Statement of Objections. For mainline signalling this data was received on 29 November 2018, in response to Request for Information RFI 174 (Q8).

(149)                            The Commission’s analysis has also taken into account more recent developments  not reflected in the CPL or related bidding statistics. Notably, […]. When relevant, recent development not reflected in the CPL and bidding statistics are reported in the Decision and assessed qualitatively.

5.3.2.           The Notifying Party's views

(150)                            The Parties argue that their market shares are not indicative of market power because powerful competitors will remain post-Transaction. They consider that they face at least 8 competitors globally, including Bombardier, CAF, CRRC, Hitachi-Ansaldo, Hyundai Rotem, Kawasaki, Stadler and Talgo.113 In the EEA, the Parties argue that they face at least 5 strong high-speed players (Bombardier, CAF, Hitachi-Ansaldo,

Stadler and Talgo).114

(151)                            According to the Parties, the Transaction's impact will be further mitigated in light of

(i) harmonised regulatory requirements facilitating entry in the EEA, (ii) increased participation in tenders, (iii) the fact that the Parties are not close competitors, (iv) CRRC's potential entry, (v) countervailing buyer power exercised by sophisticated buyers, and (vi) the fact that tenders are infrequent which incentivises competitors to participate.

(152)                            In the potential separate market for very high-speed rolling stock, the Parties argue that they face competition from 4 established very high-speed suppliers (Bombardier,CAF, Hitachi-Ansaldo and Talgo) and the likely entry of Stadler and Asian players with very high-speed trains in operation in their home countries.115

5.3.3.           Results of the market investigation and the Commission's assessment

5.3.3.1.              The Parties' activities and market shares

(A)                  The Parties' market shares

(A.i)       Alstom's activities

(153)                             Both Siemens and Alstom offer a variety of high and very high-speed rolling stock. Siemens offers single-deck trains with distributed traction116 and Alstom offers both double-deck trains with concentrated traction117 and single-deck trains with either concentrated or distributed traction.118

(154)                             Alstom's high-speed offering is structured around four platforms within its Avelia family. These platforms include single-deck and double-deck trainsets, as summarised in the following table:

Table 1: Alstom's (Very) High-Speed Platforms

Source: Form CO, Chapter B.2, Table 1.

(155)                             Alstom's high-speed platform, the Pendolino, has been sold and operates in the EEA (Finland (Karelian), Italy (NTV), Poland (PKP, Switzerland (SBB) and in the UK). […].119[…].

(156)                             Alstom's very high-speed platforms have been sold and operate in the EEA (France (SNCF – Euroduplex) and Italy (NTV – AGV)) and the rest of the world (Morocco (ONCF – TGV Duplex) and the US (Amtrak – Liberty)).

(157)                             Alstom has developed a new generation of high-speed trains called "TGV du Futur" or "TGV 2020". This development's objectives include […].120 In July 2015, SNCF launched a tender for the production of the "TGV 2020" which Alstom won in May

2016.121 Alstom explained that […]122 The contract between Alstom and SNCF is […]

(158)                             On 26 July 2018, SNCF announced that it placed an order for 100 "TGV du Futur". The initial order amounts to EUR 2.7 billion for 50 trainsets and options for an additional 50. The trains will be delivered between 2023 and 2031.123 This is the largest order of high-speed trains in the EEA since at least 2007.

(A.ii)      Siemens' activities

(159)                             Siemens' offering consists in two platforms, as summarised in Table 2:

Table 2: Siemens' (Very) High-Speed Platforms

Source: Form CO, Chapter B.2, Table 2.

(160)      […].124

(161)      […].125[…].126

(162)             Siemens' high-speed platform, the ICE, has been sold and operates in Germany (Deutsche Bahn). Its very high-speed platform, the Velaro, has been sold and operates in the EEA (Germany (Deutsche Bahn) and the UK, France, Belgium, Netherlands (Eurostar)) and in the rest of the world (Russia and Turkey (TCDD)).

(163)      […].127[…].128

(164)      […].129

(A.iii)     Market shares

a)                  Market shares: 2008-2018 period

(165)    The Parties are the leading suppliers of high-speed trains, both worldwide and within the EEA. The Parties' combined position in the overall high-speed market and the very high-speed market are indicated in the following table:

Table 3: Market Shares – 2008-2018 Order Intake (by value)

Source: Notifying Party's CPL.

(166)    Under paragraph 17 of the Horizontal Merger Guidelines, the merging parties' very large market shares constitute evidence consistent with the existence of a dominant market position. Competition concerns are all the more likely that the Transaction will reinforce a concentrated market structure. Thus, the post-merger HHI in all segmentations will be considerably higher than 2,000 (from […] to […] depending  on the segmentations examined), with a delta greatly above 250 (from […] to […] depending on the segmentations examined).

(167)    Furthermore, the market share of the Parties' competitors in high and very high-speed rolling stock must be nuanced.

(168)    Stadler developed and sold a 250 km/h-capable product in response to an SBB requirement but does not compete in very high-speed tenders:

(a)                        Stadler bid for the 2015 Flytoget Oslo airport express tender, awarded to CAF. Both Flytoget and CAF indicate that the Flytoget trains are capable of running at a maximum speed of 245 km/h.130 […];

(b)                       Stadler also bid for a 2015 NTV tender which was awarded to Alstom. This tender was for rolling stock with a maximum speed of 250 km/h.

(169)    Stadler's only award has been obtained from the Swiss national operator. Stadler has no track-record of manufacturing and selling  any  train  capable  of  speed  above 250 km/h. […] submits that […].131 Therefore, in light of (i) Stadler's extremely limited activities in 250 km/h-capable trains, (ii) its lack of any product or platform capable of higher speeds and (iii) Stadler's commercial positioning, the Commission considers that Stadler exercises limited competitive constrains in high-speed   rolling stock and would be incapable of replacing the loss of competition resulting from the Transaction.

(170)    In very high-speed rolling stock, Bombardier and Hitachi-Ansaldo have only won one supply contract jointly (in consortium) over the 2008-2018 period in the EEA  (the 2010 Trenitalia tender). In the rest of the world, Bombardier and Hitachi- Ansaldo are not active on a standalone basis. Bombardier's market share results from its participation in Talgo's winning bid for the 2011 SRO tender (Saudi Arabia) and Hitachi-Ansaldo's market share from winning a 2012 Taiwanese tender for rolling stock based on the Japanese technology (Shinkansen) together with Kawasaki and Nippon Sharyo.

(171)    Finally, CRRC has never won a high-speed or very high-speed tender in the EEA. CRRC's position on the worldwide very high-speed rolling stock market remains marginal. Its market share results from a single sale, resulting from a 2017 Indonesian Railway contract. As explained in more detail in recital (271), despite this contract, CRRC cannot be considered to exercise a significant competitive constraint on the worldwide market. The Indonesian order was not obtained through  competitive tendering, but rather as a result of government-level negotiations between China and Indonesia and was part of a project involving financing, building of rail infrastructure and rolling supplies by Chinese State-controlled entities. Ultimately, the selection of Chinese suppliers was mainly driven by financing conditions for the whole project.132 As a result, CRRC remains untested in competitive tenders against the world's main suppliers outside of China.

(172)    In light of the limited constraints exercised by other suppliers, the Parties' combined market shares accurately reflect (if not underestimate) their competitive positions over the 2008-2018 period.

b)                  The Notifying Party's views

(173)    The Parties consider that market shares do not constitute sufficient evidence of a dominant position in high-speed rolling stock.133 They further argue, to the extent  that they need to be taken into account, the Parties' market shares overstate their competitive position, for five reasons.

(174)    First, they argue that calculating market shares over the full 2008-2018 period dismisses important recent changes on the market, with more aggressive competition in the past five years.134 They further consider that the market share of a supplier can be affected significantly by a single win, such that calculating market shares over a long period downplays the importance of recent wins by competitors.

(175)    Second, the Parties argue that market shares are "distorted" by the inclusion of non- contestable orders, as non-contestable orders are a poor indicator of suppliers' probability of gaining market shares in the future.135

(176)    Third, the Parties considers that the assessment should only take into account the portion of their market shares resulting from competition against one another, in calls for tenders in which both Parties submitted competing bids. According to the Parties, restricting the competitive assessment to these tenders would have been justified because they correspond to the opportunities which could, in principle, be affected  by the Transaction.136

(177)    Fourth, the Parties considers that the 2018 TGV 2020 award to Alstom should not be taken into account to calculate market shares or for the competitive assessment. Whilst the Parties […]* that this order was the result of a contestable tender, they consider that […].137

(178)    Fifth, in their response to the Letter of Facts, the Parties argue that the Commission’s market share assessment should take into account the fact that "the Parties’ position in the EEA and Switzerland is driven in the majority by winning projects in Germany and France, respectively".138

c)                  The Commission's assessment

(179)    As a preliminary point, in accordance with the Commission's Horizontal Merger Guidelines,139 market shares are used as the starting point of the present competitive assessment. Contrary to the Notifying Party's argument, market shares do have value in assessing competitive positions in bidding markets. The Court's case-law thus recognises that the mere fact that a merger takes place on a bidding market, "does not mean that market shares are of virtually no value in assessing the strength of the various manufacturers […], especially where those shares remain relatively stable  or reveal that one undertaking is tending to strengthen its position".140

(180)    Moreover, the present assessment does not rely exclusively on market shares and is complemented with an examination of the bidding data and of the Parties' internal documents, as reviewed in Section 5.3.3.2.

(181)    The assessment set out in Section (A.iii) also includes analyses over different time periods and therefore takes full account of the nature of competitive dynamics in the markets involved. Section (i) below examines the Parties' argument in relation to the time period retained for the calculation of market shares and Section (ii) examines factors that, according to the Parties' arguments, lead to overstating their competitive position. Section (iii) examines the Parties' argument in relation to the importance of sales in Germany and France in their position.

(i)                 Market shares: 2008-2012 and 2013-2018 periods; order frequency

(182)    The Parties consider that market shares calculated over the 2008-2018 period do not accurately reflect market dynamics, for two main reasons.

(183)    First, the Parties argue that calculating market shares over a 10 years period overstates their position. According to the Parties, the resulting shares dilute recent developments more pertinent for assessing post-merger market dynamics, such as the increasing competitive pressure from Stadler.141

(184)    As a matter of methodology, the Commission maintains that market shares and bidding analysis based on the 2008-2018 period, in combination with other relevant factors such as the analysis of the internal documents, should form the basis for the assessment. This is because, as the Notifying Party recognises, the relevant markets are characterised by large and infrequent tenders. There have been a limited number of high and very high-speed rolling stock projects in the world (excluding China, Japan and South Korea) since 2008: 19 calls for contestable tenders overall (of which 11 for very high-speed), and only 11 in the EEA plus Switzerland (of which 6 for very high-speed).142

(185)    As in prior cases involving markets characterised by lumpy demand, market shares should be analysed over several years.143 Calculating market shares based on a more limited length of time restricts the underlying number of tenders to very few, with the consequent risk of providing a very distorted view of each player’s competitive position. In the present case, calculating market shares over the 2013-2018 period instead of the 2008-2018 period significantly reduces the number of worldwide tenders covered, from 19 to 9 tenders in high and very high-speed rolling stock and from 11 to 5 tenders in very high-speed rolling stock alone. In this context, because market share calculated over a short period of time are based on a very small sample of tenders, any individual win or loss inevitably results in a very significant impact, which does not however accurately reflect appropriately the competitive dynamics.

(186)    At the same time, as stated in paragraph 15 of the Horizontal Merger Guidelines, "changes in historic market shares may provide useful information about the competitive process and the likely future importance of the various competitors, for instance by indicating whether firms have been gaining or losing market shares". Therefore, the assessment should verify whether the relevant markets were affected by structural changes that may otherwise be diluted when examining a longer period of time.

(187)    The following table sets out the Parties' and their competitors' market shares for the 2013-2018 period, as suggested by the Parties:

Table 4: Market Shares (high-speed including 250 km/h) – 2013-2018 Order Intake (by value)

Source: Notifying Party's CPL.

(188)    Calculating market shares on the basis of the 2013-2018 period does not change the competitive assessment. The Parties' combined market share remains in excess of 50% in all segmentations and post-merger HHIs remain considerably higher than 2,000 (from […] to […] depending on the segmentations examined), with a delta greatly above 250 (from […] to […] depending on the segmentations examined).

(189)    Table 5 compares market shares over the first and second half of the 2008-2018 period, in the EEA:

Table 5: Market Shares – EEA & Switzerland – 2008-2012 and 2013-2018 Order Intake (by value)

Source: Notifying Party's CPL.

(190)    The main structural change in the EEA-wide market over the 2008-2018 period has been Stadler's entry in high-speed rolling stock with the award of the 2014 SBB order. Although Stadler's entry has been at the expense of the Parties, in particular Alstom  which  had  previously been  awarded  a  contract  by SBB  for  the supply of

Pendolinos, the Parties' combined market share remains above 50% in the 2013-2018 period.

(191)    In very high-speed rolling stock, despite Talgo's win of the 2016 Renfe tender, the Parties have significantly reinforced their positions over the 2013-2018 period as a result of an award from SNCF to Alstom and additional Eurostar orders to  Siemens144  and have a combined market share of [80-90]%.

(192)    Table 6 compares market shares over the first and second half of the 2008-2018 period, on a worldwide basis:

Table 6: Market Shares – Worldwide (excl. China, Japan and South Korea) – 2008-2012 and 2013-2018 Order Intake (by value)

Source: Notifying Party's CPL.

(193)    In the high-speed segment, worldwide market shares show similar structural changes, with the entry of mainly Stadler in high-speed rolling stock due to the 2014 SBB award. In very high-speed rolling stock, the Parties' position was significantly reinforced in the 2013-2018 period (reaching [80-90]%) due to major awards not  only in the EEA, but also in the rest of the world, namely in Turkey (Siemens won TCDD tenders in 2013 and 2018) and in the US (Alstom won the 2016 Amtrak tender).

(194)    As a result, the Parties' combined market shares in the overall market and the very high-speed market are even higher based on the 2013-2018 period than they are  when considering the 2008-2018 or the 2008-2012 periods.

(195)    The Parties' market share increase over the 2013-2018 period, in particular with respect to very high-speed rolling stock, is further evidence indicative of the Parties' combined market power. According to the Court's case-law, "[e]ven on a bidding market, the fact of a manufacturer maintaining, or even increasing, its market share over a number of years in succession is an indication of market strength. A time must come when the difference between one manufacturer’s market share and that of its competitors can no longer be dismissed as a function of the limited number of competitions that constitute demand on the market. Consequently, the upwards trend represented by the recent increase in [the acquirer's] market share is a particularly convincing element of the Commission’s analysis and there are no grounds for holding that the Commission made a manifest error of assessment".145

(196)    Second, the Parties argue that competitors' positions can change significantly with only a single win. This is because "demand in the high-speed market is highly concentrated, with only a few high-value projects determining the outcome of the historical market share assessment".146

(197)    This is particularly true with respect to the Parties' competitors. For example, Stadler gained a [20-30]% worldwide market share in high-speed rolling stock over the 2013-2018 period with the sole win of the 2014 SBB tender, although it was previously absent from the market. Similarly, although it did not sell any very high- speed train in the EEA over the 2008-2012 period, Talgo gained a [10-20]% EEA market share with the sole win of the 2016 Renfe tender. The opposite is also true of Bombardier and Hitachi-Ansaldo, which had a combined worldwide market share of [30-40]% in very high-speed rolling stock in 2008-2012 but have not won any contract and therefore do not have any market share over the 2013-2018 period.

(198)    The variability of competitors market shares contrasts with the stability of the Parties' own leading positions over time. The Parties' stable leadership of the high and very high-speed rolling stock markets is due to two factors.

(199)    First, each of Siemens and Alstom are the incumbent monopoly suppliers of high and very high-speed trains to their respective national operators, Deutsche Bahn and SNCF. Each Party has developed tailor-made trains for their national operators since the inception of high-speed rail in Germany and France (the ICE and the TGV) and therefore enjoy a privileged commercial relationship. Thus, Deutsche Bahn, for which Siemens developed the ICE, is unlikely to change suppliers for its high-speed fleet. In very high-speed, Deutsche Bahn appears willing to procuring rolling stock from other suppliers and invited Alstom to bid in its 2008 tender which was however ultimately awarded to Siemens. The competitive interaction between the Parties in relation to this tender is explained in more details in recital (450).

(200)    For its part, SNCF has only awarded very high-speed supply contracts to Alstom.  The most recent developments of the "TGV du Futur" confirm that SNCF appears unwilling to deviate from the type of solution historically supplied by Alstom. As the Notifying Party explained […].147[…].148

(201)    The Parties' respective monopoly positions vis-à-vis Deutsche Bahn and SNCF has had a significant impact on their respective market shares because Germany andFrance are among the most important high-speed rolling stock customers in the EEA, Deutsche Bahn and SNCF operating two of the three largest high-speed railways, as illustrated in Figure 1.

Figure 1: Km of high-speed (≥250 km/h) lines in operation (as of 12 June 2018) – EEA and Switzerland

Source: https://uic.org/IMG/pdf/20180612a  high  speed  lines  in  the world.pdf

(202)    Consequently, the Parties benefit from more regular cyclic orders from Deutsche Bahn and SNCF than their competitors obtain from their own customers.

(203)    Furthermore, the Parties respectively hold the largest contracts awarded in the EEA over at least the past 10 years: Deutsche Bahn's 2011 ICE framework agreement with Siemens and SNCF's 2018 TGV du Futur order.

(204)    The second factor supporting the stability of the Parties' leading positions is their continued success when bidding in contestable calls for tenders outside of their home countries. In the EEA and Switzerland, with the exception of CAF's award of the 2015 Flytoget high-speed rolling stock tender (which ultimately decided to use a trainset travelling at lower speeds), the Parties are the sole suppliers with sales of  high and very high-speed rolling stock outside of their domestic markets.

(205)    In particular, the Parties have won almost all tenders by non-national operators in the EEA and Switzerland. Except for […], Siemens and Alstom have won all contracts awarded by customers other than national rail operators, namely NTV (2008 and 2015), Eurostar (2010) and, more recently, […].

(206)    In the rest of the world, the Parties have sold high and very high-speed rolling stock in Morocco, Russia, Turkey and US between 2008 and 2018. Other than the Parties, Talgo is the sole operator with high and very high-speed rolling stock sales in contestable tenders outside of the EEA during the same period (in Uzbekistan and Saudi Arabia).

(207)    As a result, although a single win is liable to have a significant impact on the position of other suppliers, the Parties have received regular orders sustaining remarkably  high stable market shares over a long period of time.

(ii)         The Parties' combined market share does not overstate their competitive position

(208)    In response to the Statement of Objections, the Parties argue that the market shares presented by the Commission in the Statement of Objections overstate the Parties' competitive position and should instead be re-calculated by (i) excluding "order intakes" resulting from non-contestable tenders, (ii) excluding tenders in which the Parties did not face each other and (iii) excluding SNCF’s 2018 EUR […] order of TGV du Futur trainsets to Alstom. Furthermore, the Parties advocate for restricting the calculations to the EEA and the past few years (2013-2018) only.149

(209)    In response to the Letter of Facts, the Parties further argue that, to the extent that the Commission relies on market shares that include both contestable and non- contestable tenders, its assessment should also take into account projects in China,

Japan and South Korea.150

(210)    The Parties' approach is flawed and leads to artificial results, as explained in detail in recitals (211) and seq.

(211)    First, by overly restricting the sample of tenders based on which market shares are calculated, the resulting market shares are likely to no longer correctly reflect the nature of competitive interactions and consequentially the competitive dynamics. In bidding markets, market shares based on a very small number of tenders do not allow drawing any meaningful conclusions of each player’s real strength in the market.

(212)    The Parties argue in favour of restricting market share calculations in terms of duration (2013-2018) and geographic coverage (EEA only, in contradiction with its own proposed global market definition). In addition, the Parties would also eliminate both non-contestable tenders from their calculations and one of Alstom’s own most recent award (albeit obtained in a contestable tender). This approach cannot lead to any meaningful results because the Parties would base their assessment on a scant sample of four tenders, namely the 2014-2015 SBB, NTV and Flytoget high-speed rolling stock tenders and the sole 2016 Renfe very high-speed rolling stock tender.

(213)    In response to the Letter of Facts, the Parties acknowledged that "the size of the sub- samples for very high speed market share assessment become very small,  particularly when focusing on the period 2013-2018, in which there were only two contestable tenders awarded. For this reason, market shares are unlikely to provide  a reliable insight into competition in the hypothetical for very high speed trains".151 This is also true for the overall market for high and very high-speed rolling stock in the 2013-2018 period, which covers a small number of tenders (four). Therefore, the same considerations apply to the overall market for high and very high-speed rolling stock and market shares calculated on the basis of a small sample of four tenders are also unlikely to provide reliable information on competitive dynamics.

(214)    Furthermore, there are indications that at least some of the very few contestable tenders that occurred during the period 2013-2018 were not as focal to Siemens’ strategy as the ones that occurred during 2008-2012. Alstom’s internal documents relating to the 2014 SBB Swiss tender mention that […].(215)    In response to the Letter of Facts, the Parties argue that […].153[…].

(216)    Second, as regards the merit of restricting the calculation of market shares to the contestable tenders only, the Commission considers the following.

(217)    The bidding data provided by the Notifying Party characterises a number of tenders  as "non-contestable" either because they constitute repeat orders based on past contracts, or because they were not awarded through an open, competitive tendering process. The Parties' own order intakes from "non-contestable" tenders  all correspond to repeat orders. Examples of awards outside of open tenders include CRRC's 2017 Indonesian Railways award (as explained in recital (272) below) and Hitachi-Ansaldo's 2017 Trenitalia order of refurbished Fyra trains (as explained in recital (252) below).

(218)    Contrary to the Parties' argument, non-contestable orders do contribute to a supplier's competitive position. They contribute to establishing a supplier's track-record of manufacturing and delivering certain types of trains and therefore constitute references which suppliers can leverage in other calls for tenders. Furthermore, they contribute to supporting large investment in R&D, engineering, development and manufacturing capacity which are important contributors to a supplier's strength when bidding for tenders.

(219)    Therefore, non-contestable awards do reflect a position in relation to a long-standing customer relationship, often initially obtained in a competitive process. The existence and advantages resulting from long-standing customer relationships are relevant to the competitive assessment.

(220)    Accordingly, calculating market shares on the basis of total order intakes is informative because it allows taking into account factors that are relevant to the competitive assessment which would otherwise be overlooked.

(221)    At the same time, the Commission agrees that market shares calculated on the basis  of contestable tenders only are also informative because they allow focussing the assessment on tenders where there was effective competitive interaction between rolling stock suppliers, that is, the tenders that are more likely to be affected by a potential loss of competition between the Parties.

(222)    However, the market shares for 2008-2018154 calculated solely on the basis of contestable tenders would not change the outcome of the assessment. The Parties  hold shares in excess of [50-60]% in all conceivable market segments, as shown in the following table:

Table 7: Market Shares – 2008-2018 Order Intake (by value) – Contestable tenders only

Source: Notifying Party's CPL.

(223)    Overall, since a given supplier's order intake (even from non-contestable tenders) may influence its position when bidding for contracts, the market shares and bidding analysis are both highly relevant to the competitive assessment.

(224)    As a result, the present assessment is based on both an examination of the Parties'  and their competitors' positions in relation to their entire order intake and an analysis of the competitive constraints exercised in the sole context of open, contestable tenders. Competitive interactions at play in contestable tenders only are examined in further detail in the bidding analysis performed in Section 5.3.3.2 as well as in more detail in Annex 1.

(225)    Third, there is no justification for excluding tenders in which the Parties did not meet from market share calculations. The basis for correct market share calculations is the total size of the relevant market (calculated in terms of sales revenues in this case) and each firm’s market share must be calculated based on all tenders, not the subset of tenders in which the Parties’ have met. In bidding markets, also market shares based on contestable tenders only are typically assessed (see Annex 1 and

(226)    Table 7), in order to present the Parties’ position when restricting the analysis to (contestable) tenders in which some competition has taken place.

(227)    If the point raised by the Parties is simply that not all of their combined market share is generated by sales from tenders in which the Parties have met, the Commission notes the following. First, the majority ([…]%) of the Parties' combined market share in fact does come from wins in tenders in which the Parties have met.155 Second, as explained at recital (218) et seq., also sales from non-contestable tenders contribute  to a supplier's competitive position.

(228)    In any event, restricting the analysis of the Parties' market shares to the tenders in which they have met could be unfavourable to the Parties because it may result in higher market shares in the subset of tenders in which both Parties participated as opposed to the larger set of tenders in which only one or neither of the Parties participated.

(229)    In any event, the frequency and intensity of the Parties' direct interactions when participating in tenders are examined in the bidding analysis (Section 5.3.3.2).

(230)    Fourth, there is no reason to ignore the 2018 "TGV du Futur" award to Alstom when calculating the Parties market shares. Rather, the Parties' claim in this regard is at odds with their argument that the competitive assessment should focus on recent evolutions of the high and very high-speed markets. Furthermore, the Parties recognise that this order was the result of a contestable tender (the 2016 "TGV 2020" call for tenders by SNCF). While the project was ultimately awarded to Alstom, contrary to the Parties' claim, […].156 Therefore, Alstom's 2018 award resulting from its winning bid in SNCF's 2016 "TGV 2020" tender is informative of its competitive position and should be taken into account to calculate market shares.

(231)    Fifth, the Parties' suggestion that market share calculations should include sales in China, Japan and South Korea contradicts the Notifying Party's position in the Form CO,157 confirmed by the Commission’s assessment, that the worldwide market for high and very high-speed rolling stock should exclude these countries. As indicated  in paragraphs (129) to (132), insurmountable barriers impede the entry of foreign suppliers in China, Japan and South Korea. Accordingly, the position of national suppliers within these countries (respectively, CRRC in China, Hyundai-Rotem in South Korea and Hitachi, Kawasaki and other companies involved in the supply of the high and very high-speed rolling stock in Japan) is the result of activity isolated from the competitive pressure of foreign companies. The respective market shares of national incumbents in China, Japan and South Korea therefore cannot be informative of their competitive position on the relevant market.

(iii)       The Parties' market share in relation to Germany and France

(232)    The Parties considers that the Commission's assessment should take into account the fact that their market share is driven by wins in their home countries. The Parties calculate that, once their sales in Germany and France are excluded from market share calculations, their position appears lower than market shares otherwise indicate.158

(233)    First, as a preliminary point, the Parties’ market shares used by the Commission are based on the Parties’ wins within and outside their home countries, as this is the standard practice for market shares calculations. Evidently, due to the importance of the high and very high-speed rail networks of Germany and France, described in recitals (199) et seq., Siemens and Alstom have benefitted from large orders from Deutsche Bahn (including Deutsche Bahn’s very high-speed rolling stock procurement, for which Siemens and Alstom competed head to head) and SNCF,  over the 2008-2018 period.

(234)    Second, the Parties’ sales in Germany and France cannot be ignored in the competitive assessment as they contribute significantly to their competitive position. Their sales to Deutsche Bahn and SNCF, which are major customers of high and  very high-speed rolling stock, contribute to establishing the Parties’ track-record and therefore constitute references which Siemens and Alstom can leverage in other calls for tenders. Furthermore, they contribute to supporting large investment in R&D, engineering, development and manufacturing capacity, which are important contributors to a supplier's strength when bidding for tenders. Consequently, market share calculations appropriately include the Parties’ sales in Germany and France, as these sales are relevant to the competitive assessment.

(235)    Third, the Parties' argument amounts to claiming that their market share mainly results from their position as the incumbent suppliers of high and very high-speed trains in Germany and France respectively. However, this situation is not unique and other suppliers have had major wins in their respective home countries: the Italian supplier AnsaldoBreda (which was later acquired by Hitachi) won a 2010 tender for very high-speed rolling stock in Italy (for Trenitalia), the Swiss supplier Stadler won a 2014 tender for high-speed rolling stock in Switzerland (for SBB) and the Spanish supplier Talgo won a 2016 tender for very high-speed rolling stock in Spain (for Renfe).

(236)    These sales represent a large portion of each of these suppliers’ market share, both in the EEA (and Switzerland) and on a worldwide basis. In the EEA and Switzerland, Stadler’s, Hitachi-Ansaldo’s and Talgo’s entire market share in the overall market  for high and very high-speed rolling stock and on the narrower market for very high- speed rolling stock is due to their wins in their respective home countries. Therefore, for the sake of the argument, if all wins by national incumbents in their home countries (not just the Parties’ wins) were excluded from market share calculations, the Parties would account for the vast majority of sales in the EEA and Switzerland. This conclusion results from the fact that, in contrast with other suppliers, the Parties have had significant sales outside of their home countries. Excluding tenders won by national incumbents in the EEA and Switzerland,159 almost all the remaining contestable tenders over the 2013-2018 period have been won by the Parties:

(1)                      In high-speed rolling stock: Alstom won a 2011 tender in Poland (PKP) and a 2015 tender in Italy (NTV), losing only once, in the 2015 Norway (Flytoget) tender which it lost to CAF;

(2)                      In very high-speed rolling stock: Alstom won a 2008 tender in Italy (NTV) and a […], whereas Siemens won the 2010 Eurostar tender. Other than incumbents winning tenders in their home countries, no other supplier has had any success in the EEA and Switzerland.

(237)    Similarly, competitors have had much less success than the Parties in the rest of the world (excluding China, Japan and South Korea):

(1)                      In high-speed rolling stock: Siemens won a 2011 tender in Russia (RZD) and Talgo won tenders in 2009 and 2015 in Uzbekistan (Uzbekistan Railways)  […];

(2)                      In very high-speed rolling stock: Alstom won a 2010 tender in Morocco (ONCF) and a 2016 tender in the USA (Amtrak), Siemens won tenders in 2013 and 2018 in Turkey (TCDD) and a Talgo/Bombardier consortium won a 2011 tender in Saudi Arabia (SRO).

(238)    In conclusion, for the reasons stated in recitals (232) to (237), the Commission considers that there is no ground for excluding the Parties’ sales in Germany and France from the competitive assessment. In any event, the Parties have had significantly more success than their competitors in tenders organized outside of their home countries. Taking into account the importance of the Parties’ sales in their home countries therefore does not alter the significance of their market shares and  the competitive assessment.

(239)    In light of the arguments set out in Section (A), the market share calculations conducted for the present assessment accurately reflect the Parties' competitive positions.

(B)                  The Parties' important positions in innovation

(240)    Innovation plays a key role in rolling stock markets, which are characterised by the constant development and commercialisation of new products.

(241)    In the course of the market investigation, the majority of competitors recognised that high and very high-speed rolling stock markets are highly innovative.160 By contrast, the Parties explained that R&D in high and very high-speed rolling stock is "primarily about the application of available technologies and incremental product improvements" and that "[b]asic research accounts for a very small proportion of the industry’s R&D" and that "[…]".161 The Parties further explained that R&D investment levels are below […]% that is "well below those typically observed in innovation-driven industries such as IT or pharmaceuticals".162

(242)    Although, as the Notifying Party correctly argues, the rail industry is not driven by basic research, the Transaction’s structural effects will be further reinforced by the consolidation of the Parties’ positions as innovators.

(243)    First, the Parties are currently leading innovators in high and very high-speed rolling stock markets,163 having introduced pioneering technology including, recently, technologies such as such Siemens' Permanent Magnet Motors and aerodynamic optimisation, and Alstom's tilting technology.164 The combination of their R&D capabilities   will   enable   the   merged   entity  to   consolidate   their   leadershipn i, innovation post-Transaction, holding one of the largest patent portfolio in rolling stock in terms of number.165

(244)    Second, figures provided by the Parties on R&D investment levels are overall consistent with information provided by market participants and publicly available information. The market investigation also corroborated the Parties’ view that innovation mainly consists of product improvements, which are customer and tender specific. Several competitors and suppliers also confirmed that innovation in rolling stock markets is mainly conducted at component level.166

(245)    Nonetheless, in addition to non-component-specific innovations, the Parties’ expertise consists in integrating various (innovative) components onto a platform that fits customer demand. Larger suppliers of high and very high-speed rolling stock have an advantage in that regard, due to their more extensive experience as integrators. The driving role of demand for innovation has also been acknowledged  in a survey on the competiveness of the European rail industry commissioned by the Directorate General Enterprise and Industry of the Commission, which noted that "[i]nnovation in the EU RSI [rail supply industry] is a mixture of supply and demand driven innovation. In each tender the operator defines the requirements and the industry competes to offer the best product with the most efficient technology. In order to accommodate the needs of the operator, the system integrators define products and technologies.…Innovation in the RSI, stimulated by the need to win new contracts, is highly dependent on the demand of railway products".167

(246)    Moreover, the majority of competitors contacted during the Phase II investigation, except […],168 confirmed the existence of a link between the size of the installed- base and a supplier’s ability to innovate.169 They explained that, given  the  importance of data obtained from the installed-base for innovation, the size of the installed-base has an effect on the ability to innovate. Competitors indicated that a larger volume of data provides more relevant information as well as better results, and consequently enhance the ability to innovate. This enables rolling stock suppliers with larger installed base to develop better targeted, and potentially cheaper, innovations. As […] explained, "[i]n general, the larger the installed base, the larger the ability to innovate as more data points collected lead to a statistically mor concise results".170 [...] also indicated that "the cumulative operational experience is another factor that gives a competitive advantage when it comes to knowing what  and how to innovate of companies with products in operation phase".171 This is also confirmed by internal documents describing […].172

(247)    Data generated by the installed-base generally belongs to customers (rail operators) and remains inaccessible to competitors.173 The majority of customers indicated that they generally grant access to data to the rolling stock supplier for maintenance purposes during the warranty period which covers several years.174 In their response to the Article 6(1)(c) Decision, the Parties submitted, in relation to predictive maintenance, that customers give access to data to rolling stock suppliers on an non- exclusive basis.175 However, the majority of customers which expressed an opinion indicated that access to data is not usually granted to third party rolling stock suppliers.176 […] added that the dataset generated by the installed base "is unique and incapable of being replicated by third parties".177 Rolling stock suppliers can therefore only rely on data from their own installed base to innovate.

(C)                  The Parties' competitors

(248)    Despite the Notifying Party's claim that there is "vigorous" competition within the EEA, not a single competitor has sold high or very high-speed trains to EEA customers other than operators located in their home countries (despite CAF’s win in the 2015 Flytoget tender). In addition, due to joint bidding strategies and portfolio limitations, the number of actual competitors facing the Merged Entity after the Transaction is limited.

(C.i)       Bombardier and Hitachi-Ansaldo

(249)    Bombardier and Hitachi-Ansaldo are often active as a consortium in very high-speed rolling stock. The companies jointly developed the Zefiro, a very high-speed train operated in Italy. The Zefiro was manufactured by Hitachi-Ansaldo, while Bombardier's role focused on engineering.178

(250)    The Parties consider that Bombardier is a "major player" in the high-speed rolling stock market because (i) it was involved in the development of many high-speed trains in operation in the EEA, (ii) it delivered thousands of high-speed trains in China via its joint venture with CRRC, (iii) it developed the Zefiro platform and (iv) it has bid in multiple high and very high-speed tenders.179  Similarly, they consider that Hitachi-Ansaldo should be viewed as a standalone competitor, in light of (i) its longstanding experience in developing high-speed trains, (ii) its supply of intercity trains in the UK, (iii) its interest in several very high-speed tenders in the EEA.

(251)    However, Bombardier has not sold high or very high-speed rolling stock on a standalone basis since at least 2008 in the worldwide market (excluding China, Japan and South Korea) and its involvement in the development of high-speed trains has systematically resulted from collaborations with other players.180 In the EEA, all  sales by Bombardier on the basis of the Zefiro platform have been in consortium  with Hitachi-Ansaldo. Bombardier may have bid on a standalone basis from time to time but with no success. In 2018, in the ongoing HS2 tender, despite having been pre-qualified on a standalone basis, Bombardier again decided to form a consortium with Hitachi-Ansaldo at the bidding stage.

(252)    Similarly, in the rest of world, Bombardier has had no standalone sale in high or very high-speed rolling stock, having only been awarded a very high-speed rolling stock contract in consortium with Talgo (SRO (Saudi Arabia), 2011).

(253)    Hitachi, which took over AnsaldoBreda in 2015, had limited sales of the "Fyra V250", a former AnsaldoBreda high-speed platform, in Italy (Trenitalia) in 2017. This sale was obtained outside of a competitive tender.181 Other than this sale, all of Hitachi-Ansaldo's business in high and very high-speed rolling stock has resulted from joint developments and sales, either with Bombardier in the EEA (Trenitalia (Italy), 2010) or with other Japanese companies involved in the development of the Shinkansen "bullet train" (THRSC (Taiwan), 2012).

(254)    The Parties observe that Hitachi-Ansaldo initially developed the AT 400 "British Bullet Train" train, designed for speeds up to 360 km/h for the HS2 tender and was thus shortlisted to bid by HS2 on a standalone basis in November 2017.182 However, since that date, Hitachi-Ansaldo decided to form a consortium with Bombardier to  bid in the HS2 tender.

(255)    Therefore, the competitive constraint exercised by Bombardier and Hitachi-Ansaldo must be assessed in light of the fact that neither of these companies is active in high and very high-speed rolling stock on a standalone basis.

(C.ii)      CAF

(256)    CAF is a Spanish company active in high-speed rolling stock. Within the EEA,  CAF's high-speed trains have only been sold and operated in Spain. In the rest of the world, CAF also sold high-speed trains in Turkey (in 2005). More recently CAF sold trains to Flytoget, which operates the Oslo airport express service in Norway (2015). However, as confirmed by CAF and Flytoget, this rolling stock is only capable of a maximum speed of 245 km/h and cannot therefore be considered as "high-speed" under the definition adopted in this Decision.183

(257)    The Parties consider CAF as an established player in high-speed rolling stock and claims that it is advantaged by "[…]".184 They note that CAF sold high-speed rolling stock in Turkey 13 years ago and, since then, has participated in several calls for tenders.185

(258)    However, despite CAF's alleged cost-advantage, the company has not sold high or very high-speed trains since 2005. Although CAF did win the small Flytoget tender  in Norway, it ultimately sold rolling stock with a maximum speed below 250  km/h.186

(259)    Furthermore, CAF was initially disqualified to bid in HS2's ongoing tender. HS2's decision to requalify CAF was taken after Bombardier and Hitachi-Ansaldo decided to bid jointly. However, […] understands that HS2's decision to allow CAF to bid is primarily aimed at resolving legal action initiated by CAF against HS2. […] further notes being unaware of any CAF very high-speed business globally and that it understands that CAF "is viewed within the industry as (at best) a second tiers player in high-speed".187

(260)    Therefore, CAF’s ability to exercise a competitive constraint must be assessed in light of the fact that the company is not active on the high or very high-speed rolling stock market.

(C.iii)     Stadler

(261)    Stadler, a Swiss rolling stock supplier, has developed its Smile platform which is capable of a maximum speed of 250 km/h. That platform has been sold to the Swiss national railway operator, SBB.

(262)    The Parties note Stadler’s recent entry in high-speed rolling stock and considers that the company is "financially and technically well placed to become a ‘very high- speed’ player".188

(263)    However, Stadler's activity in high-speed trains has been limited. It has only sold high-speed trains in Switzerland and participated unsuccessfully in the 2015 NTV and Flytoget calls for tenders for 250 km/h-capable trains. Stadler is involved in an ongoing high-speed rolling stock tender organised by […].

(264)    In addition, Stadler remains inactive in very high-speed rolling stock and does not plan to develop its activities in this market due to the perceived lack of commercial opportunities. [...] indicated that "[…]".189

(265)    Although the Parties argue that Stadler's explanation was "likely strategically driven in the context of the Proposed Transaction",190  Stadler’s behaviour conforms with its statement, as the company has not sought pre-qualification nor participated in any call for tenders in very high-speed rolling stock.

(266)    Therefore, any competitive constraint exercised by Stadler is limited to high-speed rolling stock and is unlikely to develop in very high-speed rolling stock.

(C.iv)     Talgo

(267)    Talgo is a Spanish company active in high and very high-speed rolling stock. In the EEA, Talgo has only sold very high-speed rolling stock (its "Avril" platform) in Spain, having won the 2016 Renfe tender. In the rest of the world, Talgo's very high- speed trains have been sold and are in operation in Saudi Arabia (2011 SRO). Talgo has also sold a high-speed train to the Uzbekistan Railways (2009 and 2015).

(268)    According to the Parties, Talgo is implementing an "internationalization strategy", seeking to obtain supply contracts outside of its home country.191 In this context, it is worth noting that Talgo’s successful bid for the Uzbekistan Railways calls for  tenders was uncontested as no other supplier submitted a competing bid for this contract. Talgo’s successful bid (with Bombardier) for the 2011 SRO contract allowed Talgo to develop a train adapted to desert operations, which require specific corrosion-resistance to resist travel in sandy environments. […].192

(269)    Within the EEA, Talgo’s bidding activity outside of Spain has remained limited since 2008, […]. Nevertheless, Talgo has been pre-qualified to bid in the ongoing HS2 tender.

(270)    Talgo is therefore a credible competitor in Spain, but remains largely untested in  very high-speed rolling stock tenders within the EEA. Its activities in the rest of the world nonetheless support the notion that, unlike other suppliers, Talgo has a recent track-record of selling high and very high-speed trains to foreign operators.

(C.v)      Other suppliers

(271)    In addition to EEA-based suppliers, the Notifying Party considers that CRRC, Hyundai Rotem and Kawasaki exercise competitive pressure on a worldwide basis.

(272)    CRRC, a Chinese State-owned rolling stock manufacturer supplied the world's largest fleet of high and very high-speed train, entirely operated in China. CRRC's development occurred under shelter of rules that prevent competition from foreign competitors in China, as explained in recital (129) above.

(273)    In the rest of the world, CRRC's sales have been limited to the award of a contract  for the Indonesian Railway. That contract was part of a larger project involving financing and building a very high-speed rail infrastructure in Indonesia. No trains have yet been delivered at the date of this Decision. Furthermore, the Notifying Party considers that this contract was not open to competition. As the Notifying party explained, […].193

(274)    In the EEA, […].194

(275)    It follows that CRRC has not sold any high or very high-speed rolling stock in normal competitive conditions so far, nor has it been deemed fit to do so.

(276)    Nevertheless, the Parties consider that CRRC's expansion outside of China is likely  to exercise a constraint on the Merged Entity, because (i) CRRC aims at exporting its rolling stock, (ii) has developed its technology on the basis of European technology transfers, (iii) has developed a TSI-compliant platform.

(277)    The Parties' arguments in relation to the prospective expansion of CRRC will be examined in Section 5.3.3.3. At this stage, it suffices to note that, although CRRC has declared, in its marketing material, that it "designed" a platform "in accordance with the European Railway Standard TSI",195 CRRC holds no TSI certification in relation to any high or very high-speed platform. In the course of the investigation, […].196

(278)    Hyundai-Rotem is a South Korean supplier of high and very high-speed trains. It has only sold rolling stock in South Korea. It has not participated in any high or very high-speed tender outside of South Korea in at least the past 10 years. Although the Parties believe that Hyundai-Rotem was involved in the 2018 TCDD call for tenders, they confirmed that the company ultimately did not submit an offer.197

(279)    Kawasaki is a Japanese very high-speed train supplier, part of the Shinkansen  ("bullet train") consortium. Several models of the Shinkansen have been sold and operate in Japan.

(280)    Kawasaki and other members of the Shinkansen consortium also sold very high- speed rolling stock to the Taiwan High-Speed Rail Corporation, which marked the first export of the Shinkansen technology outside of Japan. According to the Notifying Party, Kawasaki may also be involved in the supply of very high-speed rolling stock to India, although public information report delays in the construction  of India's high-speed rail infrastructure.198

(281)    Kawasaki has never participated in any high or very high-speed calls for tenders outside of Asia.

(D)                  Upcoming tenders and growing global demand

(282)    In order to minimise the impact of the Transaction on the smaller conceivable geographic market definition, the EEA, the Parties argue that the importance of European demand is declining as demand for high and very high-speed trains increases in the rest of the world. Because the majority (56%) of high-speed lines under construction are outside of the EEA, the Parties consider that "the majority of the addressable high-speed market will shift to other countries over the next years".199

(283)    In the EEA, the Parties expect that […] upcoming tenders will be organised in the foreseeable future (up until 2025), as listed in the following table.

Table 8: Upcoming high and very high-speed tenders – EEA200

Source: Parties' response to the Article 6(1)(c) Decision, Annex R.B.2.2.; supplemented by Parties'

Response to RFI 79, Annex Q6.1.201

(284)    The total forecast value of orders in the EEA thus amounts to EUR […] for the  period 2018-2025. This is smaller than the total demand of the previous 8 years (2011-2018), which amounted to EUR […].202 However, that figure includes orders from SNCF and Deutsche Bahn, which historically have only purchased high and very high-speed rolling stock from Alstom and Siemens.

(285)    Excluding demand from SNCF and Deutsche Bahn, the total forecasted order value  in the EEA for the period 2018-2025 amounts to […].203 Therefore, contrary to the Parties' argument, EEA demand emanating from customers other than SNCF and Deutsche Bahn is significantly increasing.

(286)    In the rest of the world, the Parties' also expect […] upcoming tenders in the foreseeable future (up until 2025), as listed in the follow

Table 9: Upcoming high and very high-speed tenders – Rest of the world

Source: Parties' response to the Article 6(1)(c) Decision, Annex R.B.2.2.

(287)    The total forecast order value in the rest of the world amounts to EUR […].

(288)    It follows that the level of forecast demand in the EEA by 2025 is […]. Contrary to the Parties' argument, the growth of the high and very high-speed market that is addressable by the Parties' competitors is material and significant both inside and outside of the EEA.

(289)    These figures are consistent with the scope and geographic footprint of high-speed lines under construction in the world. The following figure shows that high-speed lines under construction are mainly and equally located in the EEA (44%) and in  Asia (46%, inclunding Turkey), the rest being located in the USA and the Middle East.

Figure 2: High-speed lines under construction (distance, km) – Worldwide (excl. China, Japan and South Korea)

Source: https://uic.org/IMG/pdf/20180612a  high  speed  lines  in  the world.pdf

(290)    These figures are in line with the comparable forecasted level of demand for high  and very high-speed rolling stock in the EEA and the rest of the world.

(291)    Therefore, anticipated tenders account for significant demand both within and  outside of the EEA. In the EEA, future tenders are mainly expected to be organised by operators other than SNCF and Deutsche Bahn and represent an increase of the size of the market addressable by competitors compared to the previous decade.

(E)                  Participation in tenders

(E.i)       The Notifying Party's arguments

(292)    The Notifying Party argues that participation in high and very high-speed tenders significantly increased in recent years and considers that, based on participation observed in recent tenders, there is a trend towards greater participation going forward such that the Parties expect to face at least four bidders in future tenders.

(293)    The Parties consider that participation trends should be deducted from comparing participation in the 2008-2012 period to the 2013-2018 period. Furthermore, […]* that the 2018 SNCF "TGV du Futur" order "skews the analysis" and should therefore not be considered when examining participation trends.205

(294)    In addition, the Parties argue that the existence of only two effective bidders suffice to ensure a competitive outcome.206

(E.ii)      Overall participation and win rates (2008-2018)

(295)    Prospective suppliers are selective in their decisions to bid in tenders for high and very high-speed rolling stock in light of the high cost of bidding, expected competition and the need to match customers' specifications in order to have a reasonable chance of winning.

(296)    The following table shows that in the overwhelming majority of cases the number of participants did not exceed two in calls for tenders over the 2008-2018 period on a worldwide basis on the overall market for high and very high-speed rolling stock.

Table 10: Number of participants in high and very high-speed rolling stock tenders – 2008-2018

Source: Notifying Party's CPL.

(297)    The same is true on the narrower very high-speed rolling stock market, as shown in the following table.

Table 11: Number of participants in very high-speed rolling stock tenders – 2008-2018

Source: Notifying Party's CPL.

(298)    The figures in Table 11 are based on the Notifying Party's data. In its CPL, the Notifying Party counts only […] bidder for the 2018 SNCF "TGV du Futur" tender and […] bidders in the 2016 Renfe tender. As indicated in recital (230) above, Alstom's internal documents […].207[…]. In relation to the 2016 Renfe tender, in their response to the Statement of Objections, the Parties indicated that, contrary to the data provided in its CPL, Bombardier ultimately did not submit a bid once the tender was relaunched following an appeal by Bombardier against the initial bid specification.208  Therefore, there were […] participants in this tender. Finally, […].

(299)    These adjustments however do not affect the conclusion that can be drawn from the data, which is that, over the 2008-2018 period, even taking into account the participation in the […]:

(1)   On the overall market for high and very-high speed rolling stock […]% of calls for tenders in the EEA […]% on a worldwide basis attracted two bidders or less;

(2)   On the narrower market for very high-speed rolling stock […]% of calls for tenders in the EEA […]% on a worldwide basis attracted two bidders or less.

(300)    Moreover, in the market investigation, the vast majority (71%) of customers mention that they have pre-qualified four or more suppliers on average. Therefore, despite the willingness of customers to invite at least four or more suppliers to participate in tenders, customers have most often two or less available choices in practice.

(301)    In this context, data on participation and wins in high and very-high speed tenders show that the Parties are very significant players. On an individual basis, each of Siemens and Alstom participated and won more high and very-high speed tenders than any other supplier before the Transaction.

(302)    First, the following table reports the overall participation and winning rates209 in the overall high and very high-speed market.

Table 12: Participation and win rates – High and very high-speed – EEA and worldwide, 2008-2018

Source: Notifying Party's CPL

(303)    On the overall market for high and very high-speed rolling stock, Alstom and Siemens are, respectively, the market’s leader and number two player both in terms of participation and winning rate. This holds true both at the EEA level and on a worldwide basis.

(304)    Second, with the appropriate caveats related to the very low sample size, the following table reports the overall participation and win rates in the narrower very high-speed market.

Table 13: Participation and win rates – Very high-speed – EEA and worldwide, 2008-2018

Source: Notifying Party's CPL

(305)    The Parties’ significant position is even more prominent on the narrower market for very high-speed rolling stock. Again, Alstom and Siemens are, respectively, the market’s leader and number two player in terms of participation, both EEA-wide and worldwide. They hold the same winning rate, both in the EEA and on a worldwide basis.

(306)    These figures illustrate the significant lag between the Parties on the one hand and their competitors on the other in terms of both participation and wins, regardless of market segmentations or geographic scope. Although these observations are true on both conceivable market definitions, they are particularly marked on the narrower market for very high-speed rolling stock. In tenders for very high-speed trains, no supplier enjoys more than half of each of the Parties’ individual winning rate, both in the EEA and at the worldwide level.

(307)      […].210

(308)            Furthermore, certain competitors' low win rates indicate that they barely exercise any competitive pressure on the market. On the overall market for high and very high- speed rolling stock, CAF, Hitachi-Ansaldo and Stadler have very low winning rates, especially at the worldwide level.

(309)            As concerns CAF and Stadler, this is due to their limited activities and/or success in very high-speed tenders. Although CAF participated in tenders for very high-speed rolling stock, it has had no success throughout the examined period. CAF’s  activities re limited to a small order from Flytoget in Norway, which it won in 2015, only to ultimately sell rolling stock with a maximum speed below 250 km/h. Stadler remains inactive in very high-speed rolling stock and is solely active in high-speed rolling stock following its 2014 win of an SBB tender.

(310)            Hitachi-Ansaldo's winning rate results from a 2010 Trenitalia tender for very high- speed rolling stock. Although the company has had other sales, both in high-speed rolling stock (sales of the former AnsaldoBreda’s Fyra trains to Trenitalia) and in very high-speed rolling stock (sales of Shinkasen-based trains to THRSC (Taiwan)), they resulted from orders obtained outside of a competitive tender, as explained in recital (253).

(311)            As a result, competitive conditions appear to be somewhat different when  considering the overall high and very high-speed rolling stock market or the  narrower market for very high-speed trains only. Less competitors are active and/or successful in very high-speed tenders such that the Parties’ competitive importance  in that narrower relevant market is all the more significant and less likely to be contested.

(E.iii)     Participation trends

(312) The Parties assert that there is a trend towards greater participation in high and very high-speed rolling stock tenders that can be expected to continue after the Transaction, leading to an increase in the average number of bidders in the foreseeable future.211 However, no such trend can be derived, either from the bidding data in past tenders or from observations in ongoing tenders.

a)   Assessment in relation to past tenders

(313)   In order to demonstrate the existence of a trend towards greater participation in past calls for tenders, the Notifying Party relies on participation statistics for both high and very high-speed trains. These data show […] tenders with […] bidder over time: […] noting that, while the Notifying Party lists […] for this tender, it also acknowledged that Bombardier ultimately did not submit a bid as explained in recital (298)).

(314)            However, whilst the Parties are active in both high and very high-speed rolling stock, their competitor, which participated in some of the tenders identified, are not active  in both categories:

(a)           Stadler is not active in very high-speed rolling stock. Stadler indicated having no plans to enter the very high-speed rolling stock market and does not bid for very high-speed rolling stock contracts;

(b)           CAF only supplies high-speed rolling stock. Although CAF is bidding in very high-speed rolling stock tenders, it has not been awarded any contract and therefore cannot provide competitive references to prospective customers for very high-speed rolling stock.

(315)   The participation of different players and/or their credibility when bidding for contracts is therefore disparate. For example, Stadler’s recent participation and success in high-speed rolling stock tenders has no bearing on participation trends in very high-speed rolling stock. Therefore, an accurate review of participation trends requires accounting for the difference in competitors' ability to bid for particular tenders, which can be adequately reflected when reviewing high-speed rolling stock and very high-speed rolling stock tenders separately.

(316)   In high-speed rolling stock, over the 2008-2018 period, there have been […] bidders per tender on average in the EEA (incl. Switzerland) and […] worldwide. […]. In […] instances […] two suppliers submitted a bid. In the remaining […] cases, there have been only one bidder ([…]).

(317)   No trend can be deducted from this data. The Notifying Party argues that  participation in calls for tenders over the 2008-2012 period should be compared to participation in calls for tenders over the 2013-2018 period. […]. The average  number of bidders was […] in 2008-2012 and […] in 2013-2018. However, no meaningful conclusion can be drawn from comparing these figures because the number of tenders in each respective period of time is too limited to infer any lasting trend.

(318) This limitation notwithstanding, the Notifying Party correctly argues that new  bidders have recently emerged in high-speed rolling stock, in particular Stadler and CAF, which had previously never bid and nevertheless respectively won the 2014 SBB tender and the 2015 Flytoget tender. The Parties also submitted evidence showing that […].212[…], which suggests that the emergence of CAF and Stadler as bidders in high-speed rolling stock tenders is durable.

(319)  In very high-speed rolling stock, over the 2008-2018 period, the average number of bidders per tender has been […] in the EEA (incl. Switzerland) and […] worldwide. There have been only […] tenders in which more than two bidders competed: the […]. In […] instances […] only one supplier submitted a bid. In the majority of cases, there have been two bidders ([…]).

(320)  No trend can be deducted from this data. Similarly as for high-speed rolling stock,  the Notifying Party argues that participation in calls for tenders over the 2008-2012 period should be compared to participation in calls for tenders over the 2013-2018 period. However, the number of worldwide contestable calls for tenders over shorter periods of time in very high-speed rolling stock is also limited: […] (including the […]).213 The average number of bidders was […] in 2008-2012 and […] in 2013- 2018. Comparing these figures cannot lead to meaningful conclusions because the numbers of tenders is too limited to infer any lasting trend.

(321)  In any event, the notion that "recent developments confirm increased competition"214 in very high-speed rolling stock tenders is incorrect. […]. Thus, the 2016 Renfe tender effectively attracted […] bidders; nonetheless so did […]. All […] other very high-speed tenders throughout the 2008-2018 period ([…]) attracted no more than two to three bidders.

b)    Assessment in relation to future tenders

(322)            The Parties predict that participation rates will increase in the future. They expect the average number of bidders to increase up to […] (according to Siemens) or to […] (according to Alstom).215 These predictions are at odds with the much lower average number of bidders in the 2008-2018 period for high-speed, which has been […].  The Parties admitted that "it is not always possible to provide corroborating documents", noting that "such forward-looking exercises are, by nature speculative".216 Nonetheless, in order to support their predictions, the Parties rely on public presentations by Talgo and Hitachi, which contain no tender-specific information about the companies' future bidding strategies other than vague intentions to grow their high-speed business.217

(323)            The existing evidence on future participation rates, in addition to past participation rates, relate to ongoing tendering procedures organised by SJ and HS2:

(a)           The Swedish operator SJ is procuring high-speed rolling stock through a tender […];

(b)           HS2 is the entity in charge of running the HS2 project, including in particular the procurement of rolling stock, on the basis of a delegated authority from the UK's Secretary of State for Transport.218 HS2 pre-qualified five prospective bidders (Alstom, the Bombardier/Hitachi-Ansaldo consortium, CAF, Siemens and Talgo) in order to preserve competition, anticipating that the number of final bidders will likely be less than five due to (i) the possible formation of additional consortia, (ii) the present Transaction and (iii) withdrawals from the tendering process which, according to […], […]* "very common" in the UK railway market.219

(324)            The circumstances of these tenders confirm that Stadler remains inactive in very high-speed rolling stock tenders. Therefore, if anything, the emergence of Stadler as an active bidder in high-speed rolling stock tenders does not have any bearing on future participation in very high-speed rolling stock tenders.

(325)            Furthermore, as explained by […]. The likelihood of a withdrawal before the final stage of the tendering process has thus been confirmed by both […] and […].220 In addition, the Transaction will inevitably reduce the number of bids to four at the most.221 Therefore the circumstances of the HS2 tender do not suggest the existence of a durable trend towards greater participation in very high-speed rolling stock tenders.

(326)            It follows that a significant increase in participation in future high and very high- speed rolling stock tenders is unlikely.

5.3.3.2.             Closeness of competition

(327)            In line with paragraphs 28 to 30 of the Horizontal Merger Guidelines, the present assessment will examine whether the Transaction eliminates close competitors.

(328)            Under the Horizontal Merger Guidelines, and in line with Commission practice and economic theory, the fact that the merging parties are close competitors is sufficient to establish competitive harm. They do not necessarily have to be the closest or "uniquely close"222 competitors. This is all the more true in cases where the merger creates or strengthens a new market leader with large or very large market shares.223 The Commission will also examine the degree of competitive constraints that the remaining competitors will exercise on the Merged Entity post-Transaction.

(329)            The following Sections show that the Parties compete closely on the basis of their product offering and geographic footprint (A). Bidding analysis further demonstrates the Parties’ close competitive relationship: suppliers exert competitive pressure on each other at the bidding stage (B) and the analysis of past bidding data confirms the Parties' closeness and the likely significant post-merger reduction in effective alternatives available to customers both in terms of participation in tenders (C) and win rates (D). Finally, the Parties' internal documents confirm that they compete closely (E).

(A)                                    Qualitative assessment of closeness of competition (A.i)              The Notifying Party's arguments

(330)            The Parties consider that Siemens and Alstom do not compete closely, on the basis of their product offering. In particular, the Parties consider that Siemens and Alstom are not "uniquely close competitors".224 To support this view, the Parties argue that (i) the Parties' offerings are not close, irrespective of customisation225 and that (ii) the results of the Phase I market investigation as to closeness of competition are inconclusive.226

(331)            In respect of their product offering, the Parties argue that their respective platforms differ substantially in terms of number of decks, tilting mechanism, traction system and architecture. The Parties considers that Alstom's double-deck platform is significantly different and competes more closely with Talgo’s platforms than Siemens' Velaro platform. Similarly, they assert that Alstom’s single-deck platforms are not close competitors to Siemens’ platforms either, with the possible exception of Alstom’s AGV platform, which however the Commission considers non- competitive.

(332)            In respect of the results of the market investigation, the Parties consider that respondents supported their views in relation to differences between the Parties’ platforms in terms of decks, traction and architecture. The Parties also contest that respondents considered them to be the closest competitors in high and very high- speed rolling stock.

(A.ii)      The results of the market investigation and the Commission's assessment

a)                          Parameters of competition

(333)            When bidding in rolling stock tenders, suppliers compete on multiple parameters. Evidently, an important parameter relates to the trainsets offered to customers. Customers issue technical specifications applying to the rolling stock they wish to procure that suppliers must match in order to be awarded supply contracts.

(334)            Other parameters also apply and relate to the conditions of manufacturing and delivery of trains, a supplier’s expertise, know-how and financial viability, supply- chain management, engineering and R&D capacity in case of specific developments and other factors. These parameters apply in both high and very high-speed rolling stock tenders.

(335)            As explained by […], "[o]ther than the rolling stock itself, these factors would include, but not necessarily be limited to, the supplying organization’s financial strength, staff, and post-award organization and also the supplier’s track-record in relation to similar rolling stock and maintenance services”.227 Similarly, […] indicated that its rolling stock procurement process aimed at "buy[…]* trains from established suppliers with a track-record of selling trains for cross-border  operations in Europe, with an existing proven platform, expertise and available manufacturing capacity".228

(336)            It follows that tender procedures for the procurement of rolling stock aim at fostering competition not just for the supply of trainsets, but also on the basis of the supplying entity’s ability to fulfil the requirements of a rolling stock project including, but not limited to, a supplier’s competitiveness in rolling stock manufacturing, assembly and delivery, as well as its experience and viability. As […] indicated, "its bid evaluation does not rely just on the intellectual property/product being offered but also on how  it is planned to be delivered (e.g., localization/manufacturing and supply chain capability) and which company delivers it (e.g., financial viability)".229

(337)            Consequently, the assessment of closeness of competition between the Parties cannot be limited to a comparison of the observable characteristics of their existing platforms, but must also take into account other overall factors (such as track-record, expertise, portfolio, manufacturing locations, ability to customise, etc.) that are relevant for customers when awarding tenders.

(338)            It follows that the assessment of closeness of competition between the Parties should rely on an analysis of the closeness of their product portfolios as well as, more broadly, on the closeness of the Parties’ overall positions as alternative suppliers of high and very high-speed rolling stock.

b)                          Results of the market investigation in relation to closeness of competition

(339)            In the course of the Phase I market investigation, competitors and customers were probed on closeness of competition in high-speed rolling stock and very high-speed rolling stock separately.

(340)            In high-speed rolling stock, the majority of competitors consider that the Parties respectively constitute each other's closest competitors.230 In order to obtain the customers' perspective, different metrics have been tested in the course of the market investigation to assess closeness of competition.

(341)            Customers have been asked to identify the Parties' respective competitors in terms of product range and technical capabilities. The results show that Alstom and Siemens are perceived by customers as each other's closest competitors in at least either one  of these factors. Thus, in high-speed rolling stock, Siemens and Talgo were most often cited as Alstom's closest competitors in terms of product range and Alstom was most often cited as Siemens' closest competitor in terms of technical capabilities.231

(342)            Customers were also requested to grade all alternative suppliers' in terms of best to worse alternatives to each of Siemens and Alstom on a scale from 1 to 10. In total, along with Stadler, Siemens and Alstom were graded as each other's best alternative in high-speed rolling stock.232

(343)            Customers also reported the extent to which having each of Siemens and Alstom bid in tenders enabled them to obtain better supply conditions from other suppliers. In their responses, customers indicated that Alstom bids enabled them to obtain better conditions mostly from Siemens and vice-versa.233

(344)            In very high-speed rolling stock, the market investigation led to even stronger results.

(345)            First, competitors unanimously consider that the Parties are each other's closest competitors in the very high-speed rolling stock market.234

(346)            Second, customers also clearly consider that the Parties are close competitors. In terms of technical capabilities, Siemens was most often cited by customers as Alstom's closest competitor and Alstom and Bombardier/Hitachi-Ansaldo were most often cited as Siemens' closest competitors.235

(347)            When asked to grade all alternative suppliers' in terms of best to worse alternatives to each of Siemens and Alstom on a scale from 1 to 10 in very high-speed rolling stock,

Siemens and Alstom have been graded as each other's best alternatives.236

(348)            Finally, customers indicated that, like for high-speed rolling stock, Alstom bids enabled them to obtain better conditions mostly from Siemens and vice-versa in very high-speed rolling stock tenders.237 The one difference noted between the two segments was Stadler’s absence from the very high-speed rolling stock market.238

(349)            It follows that the Parties compete closely on the overall market for high and very high-speed rolling stock as well as on the narrower market for very high-speed rolling stock, where they are perceived by customers to constitute very close competitors.

c)                           Qualitative evidence on closeness of competition

(350)            The market investigation has confirmed that high and very high-speed rolling stock are highly customer-specific products that address detailed technical specifications. Suppliers do not compete on the basis of "flagship" products, but rather on the basis of how closely their products can fit a customer's demand and their ability to customise their respective platforms to match customers' specifications.

(351)            First, both Parties develop and maintain a diverse platform portfolio in order to address customer demand. As the Notifying Party explained, "[i]n order to cut down both development time and production costs, suppliers have largely moved to the creation of common modular platforms from which derivative (final) products can be efficiently produced. This shift has removed the need to design and manufacture new products for each project".239 Suppliers therefore offer solutions to customers based on the platform within their portfolio closest to tender specifications and most efficiently customisable.

(352)            Alstom maintains the largest portfolio on the market, with […] platforms with diverse technical characteristics to address market demand, including […]  high- speed platform (the Pendolino) and […] very high-speed platforms (the Euroduplex/Avelia DD, the Avelia Liberty and the AGV).240 Similarly, each item in Siemens' portfolio was conceived to fit customer demand: Siemens has a bespoke high-speed product for Deutsche Bahn, the ICE 4, and a standardised very high- speed platform, the Velaro. […].

(353)            In this context, depending on the tenders, Alstom has submitted bids either offering […] for high-speed rolling stock tenders.241 In very high-speed rolling stock, Alstom has submitted bids against […]. In certain tenders, the Parties have offered several solutions: thus, Alstom submitted bids offering […].242

(354)            The Parties different platform/product offered in overlapping tenders are listed in the following Table:

Table 14: Worlwide high and very high-speed tenders in which Parties overlapped – 2008-2018

Source: Parties' response to the SO, Chapter B.2, paragraph 314, footnote 514 and paragraph 305

(355)            Against this background, the Notifying Party submits a platform-by-platform comparison highlighting the technical differences - in terms of number of decks, traction and architecture - between the Parties’ platforms to demonstrate that they are not closely substitutable. However, that approach assumes that these factors lead customers to differentiate the Parties' respective product offerings such that they would not constitute close substitutes.

(356)            The results of the market investigation contradict the Notifying Party's view in this respect: competitors have confirmed that the Parties' product offerings compete closely despite having different architectures.243 Customers concurred, ranking the Parties' product offerings (in terms of range, competitiveness, quality and innovation) as the best alternative to one another in particular in very high-speed rolling stock.244

(357)            On the supply-side, suppliers form bids based on platforms most closely matching tender specifications. In this respect, the Parties rely on extensive expertise, as reflected in their long-standing worldwide leading positions.

(358)            In very-high speed rolling stock specifically, the fact that Alstom has chosen to pit its double- and/or single-deck platforms against Siemens’ Velaro shows that, despite differentiated features, these platforms compete closely. If that were not the Parties’ assessment, they would not have submitted bids in the relevant tenders. Furthermore, overall, the Parties have met each other more often than any other competitors in  high and very high-speed tenders, as examined in more detail in recitals (390) to (396).

(359)            […]245 shows that Alstom, by virtue of its diversified product portfolio, is able to compete closely with Siemens even when its initial product offering no longer appears adapted given tender specifications.

(360)            Second, the Parties argue that Alstom’s AGV platform and Siemens’ Velaro platforms are the closest competing products within the Parties’ portfolios.246 They argue that, if the Commission no longer regards the AGV to be competitive, any loss of competition would be unrelated to the Transaction.

(361)            However, the competitive relationship between Siemens and Alstom has evolved in time. At the time […].247 In subsequent tenders, the AGV was unsuccessful against the Velaro. This has contributed to Alstom’s […].248

(362)            Past interactions show that head-to-head competition between Siemens and Alstom has not been limited to competition between their "off the shelf" platforms, but also encompassed innovation and customisation efforts aimed at surpassing each other in calls for tenders for specific solutions. As explained in recitals (333) et seq., the Parties’ competitive interactions are more extensive than mere platform rivalry. […] does not lead to the Parties no longer (closely) competing against one another and does not demonstrate any lack of merger-specificity of the Transaction’s effects.

(363)            Third, as a result of close competition between the Parties, Siemens and Alstom have an unmatched geographic footprint. Both Siemens and Alstom are active outside of Germany and France, with sales to customers in […]. Outside of the EEA, the Parties are active in […].

(364)            The Parties' EEA competitors, for their part, have little to no activity outside of their home countries. The only exception is Talgo, with sales in Uzbekistan, a contract for which no other supplier submitted an offer, and in Saudi-Arabia. Although CAF did win the 2015 Flytoget tender for high-speed rolling stock in Norway, this contract resulted in the supply of a 245 km/h-capable train only. As a result, for the most part, the Parties’ competitors have not had any high or very high-speed rolling stock sales outside of their home countries.

(365)            Evidently, the Parties’ more extended footprint is also the result of the Parties' more frequent bidding. However, the fact that the Parties are the most frequent bidders and most frequent competitors in high and very high-speed rolling stock on a worldwide basis also demonstrates their close competitive relationship.

(366)            In the rest of the world (excluding China, Japan and South Korea), other manufacturers also have very limited sales outside of their home countries: China’s CRRC obtained one contract in Indonesia and Japan’s Toshiba/Kawasaki one contract in Taiwan. Hyundai Rotem and Nippon Sharyo are solely active in their home countries (respectively, South Korea and Japan).

(367)            However, to this date, the Parties' competitive interaction with CRRC has been limited to […].

(368)            For the reasons set out above and in light of the results of the investigation, the Commission considers that the Parties are close competitors.

(B)      Suppliers exert competitive pressure on each other at the bidding stage (B.i)    The Notifying Party's arguments

(369)            The Notifying Party argues that, despite high historical market shares, the Merged Entity will lack market power because it will continue to compete with a large number of well-established bidders, including European and non-European suppliers. The Notifying Party makes that argument assuming that alternative suppliers  exercise a competitive constraint even in instances where they do not effectively bid against the Parties.

(370)            According to the Parties, suppliers that are simply pre-qualified to bid in tenders but do not submit a bid, or even merely seek pre-qualification, but fail to obtain it nevertheless constrain suppliers that do submit bids.249 They hold the view that the ex-ante uncertainty as to the identity of competitors still in the running to submit a  bid has led the Parties to overestimate the number of bidders in the tenders in which they have been involved, thus suggesting that there is more competitive constraint than reflected in the number of actual bidders.250

(B.ii)      Relevant characteristics of bidding markets

(371)            As the Commission explained in Case M.7278 – GE/Alstom,251 in markets characterised by tendering, the general mechanism through which a merger can influence competitive outcomes is similar to what occurs in mergers in ordinary differentiated product industries, where firms also compete on price. That is, a merger internalises the competitive pressure that two firms exercised on each other prior to the merger and can lead each of the remaining firms to bid less aggressively post-merger. The precise mechanism through which a merger can influence bids and the indicia of potential unilateral effects, depend on how the tendering process is set up and on the information available to bidders.

(372)            There is no presumption in bidding markets that very few bidders (even as low as  two bidders) are sufficient to generate a competitive outcome. This extreme result would theoretically only hold if suppliers sell identical products, have identical costs, have sufficient capacity to serve the entire market and have reliable information on the cost of the rival bidders. However, this result no longer holds if firms offer differentiated products, and therefore earn a margin over cost. As in the present case, bidding markets where firms offer differentiated products are not characterised by  the stylised perfectly competitive outcome and can generate non-coordinated effects if two competing firms merge.

(373)            In bidding markets, prices are individually negotiated with each customer and, therefore, suppliers can typically engage in extensive price discrimination across customers. This means that a bid submitted to a customer in a specific tender does  not have to be offered on similar terms to other customers in other tenders. The existence of individualised pricing means that the price effects of a merger may be targeted at a particular subset of customers, for example those that are more likely to substitute between the merging parties absent the merger. This follows from the fact that even though a price increase across all customers may not be profitable (given that too many customers would be able to substitute away from the merging parties), a price increase for a specific subset of customers may be so.

(374)  As the Notifying Party explains, in rolling stock tenders, prospective suppliers form and submit bids in a context where there is uncertainty over competing bids. In such settings, the pricing incentives of competing firms resemble those at work in ordinary markets with differentiated products. If there is uncertainty on the required price  level of the winning bid, each firm faces a trade-off between the probability of winning the tender and the margin earned in case of winning the tender. A higher bid would reduce the probability of winning the tender but would also increase the margin if the bid is successful. This trade-off is equivalent to the standard trade-off between quantity sold and price in an ordinary differentiated goods market, the difference being that in the case of a tender it is the probability of winning rather  than actual quantities sold which enters the trade-off. Each bidder therefore chooses its optimal bid in order to optimise the trade-off between expected sales and price  and thereby maximises its expected profits. Pricing incentives and the related incentives to exploit market power in bidding markets are therefore analogous to those at work in standard pricing of differentiated products.

(375)            The incentives to increase bids in bidding markets characterised by uncertainty over competing bids following a horizontal merger are very similar to those at work in ordinary markets with differentiated products. The primary difference is that the diversion of sales between competing firms should be understood in terms of expected sales (the probability of winning the tender) rather than actual sales. The incentives of the merging firms to increase prices are thus determined by the closeness of competition between them, understood as the level of diversion between the merging firms before the Transaction (evaluated in terms of winning probabilities), and by the level of pre-merger margins.

(376)            Finally, the Commission explained that, in situations characterised by uncertainty on the quality of rival offerings and on the customer evaluation for each of the products offered, the competitive constraint faced by each bidder is determined by the ex-ante probability that rival bidders may make more attractive offers and thus win the tender. When multiple bidders participate by paying a non-negligible cost (i.e. when they participated beyond the pre-qualification phase), this means that, at the time of bid submissions, those bidders believed that they had a positive probability of winning. Therefore, facing more than one rival bidder typically increases the ex-ante probability that the buyer will prefer a rival offer, and therefore increases the competitive constraint on any given bidder. Therefore, it is not only the runner-up that represented a competitive constraint on the winning bidder, and a decrease in the number of remaining bidders due to the merger may result in a reduction of the competitive constraint faced by the Merged Entity.

(B.iii)     Bidding in rolling stock tenders

(377)            The tendering process for rolling stock, including in tenders for high and very high- speed trains, is carried out in four phases:252

(a)           An initial market engagement phase, during which customers collect information about manufacturers and available products and solutions;

(b)           A pre-qualification phase, which typically follows the publication of a request for qualification ("RFQ") and consists in customers providing an overview of the tender (a Pre-qualification Pack, "PQP") and issuing a pre-qualification questionnaire to assess prospective suppliers' track record and credentials. At the end of the process, customers select suppliers qualified to bid. Customers usually do not make the short-list of qualified suppliers public;

(c)           A bidding phase, which is marked by the issuance of a request for proposals ("RFP"), which describes the project's specifications, assessment criteria, grading scheme and formal conditions for submitting bids. Prospective suppliers prepare and submit bids on this basis. Tenders may have more than one bidding round, often involving the submission of best and final offers ("BAFOs");

(d)           A post-bidding phase, which involves the customers' evaluation of bids and award, as well as final exchanges with the supplier.

(378)            A supplier's involvement in the early stages of a tender is not necessarily indicative  of competitive pressure. In particular, and contrary to the Parties' argument,253 suppliers that pre-qualify to bid in a tender but do not effectively bid do not exercise a meaningful competitive constraint, for several reasons.

(379)            First, the cost of participating in the pre-qualification phase is not significant. The Parties' average total costs of bidding in tenders over the past 10 years was as follows:254

(a)           the average cost incurred by Alstom in high-speed tenders has been EUR […] and EUR […] in very high-speed rolling stock;

(b)           the average cost incurred by Siemens in high-speed tenders has been EUR […] and EUR […] in very high-speed rolling stock.

(380)            However, the Parties estimate the […]% of their total bidding cost is incurred in the bidding phase, and only […]% in the pre-qualification phase.255 Therefore merely seeking and obtaining a pre-qualification to bid in a tender does not signal a  supplier's belief that it has a high probability of winning. On the contrary, the data shows that customers pre-qualify about twice the number of prospective suppliers than actually submit bids. Withdrawals from tendering before the bidding phase are therefore frequent.

(381)            Second, the purpose of the pre-qualification phase from the perspective of a customer is to identify suppliers credible enough to be invited to bid.256 However, a customer's decision to qualify suppliers does not guarantee the degree of competition which it will effectively enjoy because suppliers then decide whether or not to participate in the actual bidding phase of the tender. Prospective suppliers who pre-qualify thus sometimes drop out of a tender before bidding. For example, out of the multiple suppliers that passed the pre-qualification phase for the 2010 Eurostar very high- speed tender,257 […]; out of the […] suppliers that took part in the pre-qualification phase  for  the  2015  Flytoget  high-speed  tender,  only  […]  candidates   submitted

bids;258 out of […] prospective suppliers initially interested in the 2016 Amtrak tender, only […] submitted bids.259

(382)            On average, EEA-based customers have pre-qualified between […] prospective suppliers in high and very high-speed rolling stock tender260 but the average number of bidders in high and very high-speed tenders since 2007 in the EEA has been […].

(383)            A supplier's decision to bid in a tender is a function of its perceived chance of winning. A customer's pre-qualification decision has no bearing on this assessment because the identity of short-listed suppliers is generally not communicated to prospective bidders (HS2 being an exception in this regard).261

(384)            Contrary to the Notifying Party's argument, uncertainty as to the number of suppliers which will ultimately place a bid in the bidding phase does not necessarily purvey increased competitive pressure. Prospective bidders may err in predicting the submission of more or less bids that they will ultimately compete against. If competitors underestimate the extent of competition, their perceived chances of winning would be affected positively. There is no reason to believe that the Parties generally assume more or less bidders than effectively bid in tenders such that the uncertainty on the precise number of bidders cannot be assumed to influence their expected constraints one way or the other. In any event, it can be observed that the Parties' ex-ante predictions in relation to the identity and number of bidders appear correct in the majority of instances.262

(385)            As explained under Section (B.ii), in situations of uncertainty over the quality of  rival offerings and on the customer evaluation for each of the products offered, the competitive constraint faced by each bidder is less determined by the number of bidders, than by the ex-ante probability that rival bidders may make more attractive offers and thus win the tender. In the context of high and very high-speed rolling stock tenders, this means that to assess the closeness of competition between suppliers, the fact that a supplier passed the qualification stage of a tender matters less than its probability of winning the tender.

(386)            In order to make this assessment, Alstom […].263 Siemens, for its part, expresses its predictions in terms of […].264[…].

(387)            Moreover, as shown in the bidding data analysed in detail in Sections (C) and (D), the Parties […]. As the Commission observed in GE/Alstom, that "bidders with low winning probabilities have a limited ability to affect the outcome of a bidding process. Their low probability of winning would be indicative of their weak   position and their inability to constrain stronger competitors".265 Consequently, even in situations of uncertainty as to the participation of other bidders, the meagre past winning record of competitors is unlikely to support a significant constraint on the Merged Entity.

(388)            […]. In other words, the fact that a competitor with a very small perceived chance of winning may participate in a tender does not constrain the Parties' competitive positioning, nor has any influence on the degree of effective competition enjoyed by customers.

(389)            It follows that no material competitive constraint can be inferred from mere declared intentions to participate in tender or even pre-qualifying to bid. […]. Simply put, the mere existence of alternative suppliers does not generate any competitive constraint. The degree of competitive constraints effectively exercised on the Parties needs to be assessed on the basis of an analysis of past bidding data regarding suppliers' participation in tender and their respective interactions and winning rates.

(C)  Competitive interactions and the merger's impact on participation (C.i)              Participation against the Parties: 2008-2018

(390)      […].

(391)      […].

Table 15: Participation rate in high and very high-speed rolling stock tenders – 2008-2018

Source: Notifying Party's CPL

(392) The Parties’ are therefore the most active bidders and the market leaders in terms of success in tenders, both on the overall market for high and very-high speed rolling stock and on the narrower market for very high-speed rolling stock. Furthermore, they frequently compete head-to-head in these markets.

(393)      […].

Figure 3: Bidders facing Alstom – High and very high-speed tenders (worldwide, excl. China, Japan and Korea) – 2008-2018

[…]

Source: Notifying Party's CPL

Figure 4: Bidders facing Alstom – High and very high-speed tenders (EEA and CH) – 2008-2018

[…]

Source: Notifying Party's CPL

(394)            The same is true when looking at the narrower very high-speed market […].

Figure 5: Bidders facing Alstom – Very high-speed tenders (worldwide, excl. China, Japan and Korea) – 2008-2018

[…]

Source: Notifying Party's CPL

Figure 6: Bidders facing Alstom – Very high-speed tenders (EEA and CH) – 2008-2018

[…]

Source: Notifying Party's CPL

(395)            The same analysis in respect of competitors facing Siemens also shows […].

Figure 7: Bidders facing Siemens – High and very high-speed tenders (worldwide, excl. China, Japan and Korea) – 2008-2018

[…]

Source: Notifying Party's CPL

Figure 8: Bidders facing Siemens – High and very high-speed tenders (EEA and CH) – 2008-2018

[…]

Source: Notifying Party's CPL

(396)            Siemens also most frequently […].

Figure 9: Bidders facing Siemens – Very high-speed tenders (worldwide, excl. China, Japan and Korea) – 2008-2018

[…]

Source: Notifying Party's CPL

Figure 10: Bidders facing Siemens – Very high-speed tenders (EEA and CH) – 2008-2018

[…]

Source: Notifying Party's CPL

(C.ii)      The Transaction's impact on participation

(397)            The merger's impact on participation in future tenders can be assessed in terms of the Parties' participation against one another and their interaction with competitors. The analysis of the bidding data shows that there were […] participants in […]% of all tenders for high-speed trains and […]% of all very high-speed tenders in the EEA  and […]% at the worldwide level, as shown in Table 10 and Table 11.

(398)            The Parties' interaction in high and very high-speed rolling stock tenders is summarised in Table 16:

Table 16: Frequency of Parties' participation against one another – 2008-2018

Source: Notifying Party's CPL

(399)            It follows that the Parties' interaction focuses primarily on very high-speed tenders.  In contrast, the Parties faced each other only […] in the eight contestable high-speed tenders at the worldwide level.

(400)            The Parties' less frequent interaction in high-speed rolling stock tenders results from the fact that […]. Consequently, the frequency of the Parties' interaction is significantly lower in high-speed rolling stock tenders than in very high-speed rolling stock tenders. This indicates that the Parties are particularly close competitors as regards very high-speed rolling stock.

(401)            The importance of competitors' participation in tenders where Siemens and Alstom compete against one another can also be measured, as shown in Table 17.

Table 17: Competitor participation in EEA tenders where the Parties' bid against one another – 2008- 2018

Source: Notifying Party's CPL

(402)            Bidding data shows that:

(1)          in high-speed rolling stock: […];

(2)          in very high-speed rolling stock: […].

(403)            […]. However, bidding data in relation to that tender does not have a significant impact on the assessment, […]. This suggests a concentrated market structure and, at best, a reduction from 4 to 3 players for those tenders that are the most likely to  suffer from a loss of competition between the Parties, in particular in relation to very high-speed trains.

(404)            In sum, the analysis of the Parties' participation shows that (i) the Parties are each other's most frequent competitors, (ii) that they compete against one another in a significant number of tenders, particularly in very high-speed rolling stock, and (iii) the tenders in which the Parties compete […] in which the Transaction will have a very significant impact on alternatives available to customers.

(405)            This evidence shows that the Parties are close competitors. The intensity of the Parties’ competitive relationship is mainly observable in tenders […]. On the wider relevant market encompassing both high-speed and very high-speed rolling stock,  this means that […]. This suggests that, […], the loss of competition resulting from the Transaction will mainly stem from its impact in very high-speed rolling stock tenders.

(406)            Furthermore, unlike for high-speed rolling stock, where Stadler and CAF have emerged as competing bidders, there is no new entry as regards tenders for very high-speed rolling stock. Participation in very high-speed rolling stock tenders will, therefore, likely be durably adversely affected by the Transaction.

(D)                                     Success rates in past tenders

(407)            Under paragraph 29 of the Horizontal Merger Guidelines, the assessment of rivalry between the Parties can rely, among other indicators, of whether "historically the submitted bids by one of the merging parties have been constrained by the presence of the other merging party". As discussed in Section (C), bidding analysis shows that Siemens and Alstom are close competitors, in particular as regards very high-speed trains.

(408)            In addition, according to paragraph 31 of the Horizontal Merger Guidelines "[c]ustomers of the merging parties may have difficulties switching to other suppliers because there are few alternative suppliers. […] The merger may affect these customers' ability to protect themselves against price increases". In bidding markets, there is no presumption that few bidders (even as low as two or three bidders) are sufficient to generate a competitive outcome. Furthermore, already before the Transaction, the majority of tenders for high or very high-speed trains have […] or less bidders. Thus, in light of the Parties' significant participation rates and  interaction in tenders for very high-speed rolling stock, tenders organised post- merger may not even attract […] bidders. Even if they do attract other bidders, economic theory predicts that where firms offer differentiated products, bidding markets will not be characterised by a perfectly competitive outcome, and can generate non-coordinated effects if two competing firms merge.266 Bidding analysis detailed in Section (D.ii) shows that Talgo, CAF, the Bombardier/Hitachi-Ansaldo consortium and Stadler are more distant competitors. Future very high-speed rolling stock tenders will therefore be characterised by significantly lessened competition since other suppliers are more distant competitors and will therefore insufficiently constrain the Merged Entity post-Transaction.

(409)            When conducting this type of analysis, as the Commission explained in GE/Alstom, a firm that participates often but never wins is less credible as a competitive alternative and thus exercises less significant constraint than a firm that participates and wins: "participation in tenders is particularly credible if it also results in wins. The participation analysis therefore needs to be seen in conjunction with the analysis of win rates […], and of win rates when the merging parties have faced each other".267 Similarly, the Commission observed that "bidders with low winning probabilities have a limited ability to affect the outcome of a bidding process. Their low probability of winning would be indicative of their weak position and their inability  to constrain stronger competitors. Differences in winning probabilities are also an indicator of the relative competitive strength of each bidder".268

(410)            The analysis of win rates therefore provides evidence of both the importance of the competitive constraints that the Parties exert on one another and the constraint exercised by remaining competitors, as shown in the following Section (D.i).  Bidding data can also be used to determine to which firm any given bidder loses to when it participates in a tender. The share of losses accounted by each rival supplier is informative about the impact that a particular rival supplier may have on the probability of winning of the bidder in question and thus of the specific impact of the Transaction on competition, as analysed in the following Section (D.ii).

(D.i)  The Parties are close competitors in terms of participation and wins/losses in high-  speed and very high-speed tenders

(411)            The analysis of the Parties' close competitive relationship is further confirmed by the share of their losses to other competitors. The share of each of Alstom's and Siemens' losses accounted for by each of their rivals indicates the impact that different competitors have on the Parties' probability of winning tenders.

(412)            Table 18 reports competitors' participations and win rates269 in tenders in which Alstom participated, for the overall high and very high-speed rolling stock market.

Table 18: Participation and win rates vs. Alstom – High and very high-speed – EEA and worldwide, 2008- 2018

Source: Notifying Party's CPL

(413)            With the appropriate caveats related to the very low sample size,

(414)            Table 19 presents the same statistics for the narrower very high-speed rolling stock market.

Table 19: Participation and win rates vs. Alstom – Very high-speed – EEA and worldwide, 2008-2018

Source: Notifying Party's CPL

 (415)            This data shows that, regardless of market segmentation, Alstom faces Siemens […]. In the EEA and at the worldwide level, Alstom loses tenders to Siemens […]. Siemens' participation in tenders against Alstom is therefore likely to significantly affect Alstom's chances of winning. This suggests that Siemens exercises a higher competitive constraint on Alstom for both EEA and worldwide customers than any other competitors.

(416)            Bidding data with respect to Bombardier also needs to be nuanced. Although Bombardier appears as Alstom's […] closest competitor after Siemens in terms of participation and win rates, the constraint that it imposes on Alstom in practice is lower than its win rate suggests because Bombardier has never won a high or very high-speed tender on a standalone basis. In practice, over the past 10 years, Bombardier has only won high-speed tenders due to its participation in the 2011 Deutsche Bahn tender in consortium with Siemens. Similarly, Bombardier's sole successes in very high-speed have been the result of consortia with Hitachi-Ansaldo (Zefiro platform sold to Trenitalia in 2010) and Talgo (SRO, 2011). Bombardier therefore depends on cooperation with other suppliers to compete on the relevant market.

(417)            Similar conclusions can be adopted on the basis of the various suppliers' participation and win rates in tenders in which Siemens participated.

(418)            With the appropriate caveats related to the low sample size,

(419)            Table 20 reports competitors' participations and win rates in tenders in which Siemens participated, for the overall high and very high-speed market.

Table 20: Participation and win rates vs. Siemens – High and very high-speed – EEA and worldwide, 2008-2018

Source: Notifying Party's CPL

(420)            Again, with caveats due to the very low sample size, Table 21 presents the same statistics for very high-speed rolling stock only.

Table 21: Participation and win rates vs. Siemens – Very high-speed – EEA and worldwide, 2008-2018

Source: Notifying Party's CPL

(421)            The data first shows that Siemens has been awarded the majority of high and very high-speed rolling stock tenders in which it participated since 2008. In the EEA and at the worldwide level, Siemens loses in equal measure to […].

(422)            These results show that Alstom is part of a limited group of rival suppliers able to have an impact on Siemens' probability to win high and very high-speed rolling stock tenders. On the basis of Alstom’ share of Siemens’ losses, […]. However, out of this group, Alstom most frequently challenged Siemens, having systematically competed against the company in the EEA. In the rest of the world, Alstom […].

(423)            The result of this analysis shows that, for high and very high-speed rolling stock taken together, (i) the Parties constitute each other’s main competitive constraint,   (ii […] and […] exercise more limited competitive constraints on the Parties, in very high-speed and high-speed rolling stock respectively, (iv) […] exercise similarly distant competitive constraints on Alstom and virtually none on Siemens, and (v) other competitors, including […], do not exercise any significant competitive constraint on the Parties.

(424)            On the narrower market for very high-speed rolling stock, (i) the Parties constitute each other’s main competitive constraint, (ii) in light of both participation and win rates, […] exercises a more distant competitive constraint on both Parties, (iii) […] exercises more distant competitive constraint on Alstom and none on Siemens, and

(iii) […]. (425)              […].270 […].

(426) This evidence further confirms that the Transaction will lead to a significant loss of competition and is likely to generate significant horizontal unilateral effects.

(D.iii)       Recent bidding results confirm historical bidding data

(427) In their response to the Statement of Objections, the Parties dispute the results of the bidding analysis. They argue that historical bidding data fail to reflect recent market dynamics characterised by the fact that […], that competitors have been bidding  more frequently since 2011 and that the Parties' win rate in very high-speed rolling stock tenders has […] in the period 2008-2012 ([…]) to […] in the period 2013-2018 ([…])271. They also claim that Siemens has not won any high or very high-speed tender in the EEA over the period 2013-2018.

(428) These arguments are incapable to alter the Commission's conclusions, for several reasons.

(429)   First, the Parties' analysis is solely based on tenders in the EEA. When examining    win rates, the Parties ignore tenders in the rest of the world (in contradiction with its own view that the Parties do compete on a global basis). However, on the worldwide market, the Parties have been competing and winning tenders against one another since 2011.

(430) In very high-speed rolling stock, the Parties have participated in […]. Outside of the EEA, all very high-speed rolling stock tenders have been won by the Parties, namely Siemens in two tenders organised by the Turkish operator TCDD (in 2013 and 2018) and Alstom in a tender organised by the US operator Amtrak (in 2016). […]

(431)      […].

(432)            Third, the Commission reiterates that no conclusion can be drawn from comparing results of bidding analyses for the period 2008-2012 with the period 2013-2018 due to the limited number of tenders.

(433)            Tenders in high and very high-speed rolling stock are very infrequent and there have only been 6 such tenders in the EEA and Switzerland during 2013-2018 (of which only […] were for very high-speed rolling stock, […]). In such cases, the  Commission considers that data over a longer period are more reliable for describing each player's competitive strength.

(434)            In any event, the Commission notes that the Notifying Party's assertion in relation to the evolution of the Parties' win rates is also incorrect:

(a)   in the period 2008-2012, the Parties won […] very high-speed rolling stock projects in the EEA;

(b)     in the period 2013-2018, […].

(435)            Therefore, the Parties' winning rate in the periods 2008-2012 and 2013-2018 is not significantly different, as the Parties have won […] very high-speed tender organised in the EEA in both periods.

(436)            For completeness, the Parties' win rates has increased in the rest of the world, where the Parties have won […] very high-speed rolling stock tenders in the period 2008- 2012 and […] tenders in the period 2013-2018.

(437)            Finally, as regards the Parties' claim that Siemens has not won any high or very high- speed tender in the EEA over the period 2013-2018, the Commission notes the following.

(438)            First, while it is factually correct that Siemens has not won a contestable tender in the EEA and Switzerland during 2013-2018, the Commission considers that this is not a reliable indication that the competitive strength by Siemens has decreased materially over the last few years. As explained in recital (433), the number of tenders that occurred over the 2013-2018 period in the EEA is very low. Already looking beyond the EEA, in the rest of the world, Siemens has won […] very high-speed tenders ([…]). […] was won by Alstom.

(439)            Second, and more importantly, the tenders that occurred during the period 2013-2018 were unlikely to be as appealing for Siemens as some of the important tenders that occurred during 2008-2012. […]. […], Alstom’s internal documents indicate […].272

(440)            It follows that the Parties remain the leading EEA and worldwide suppliers of high and very high-speed rolling stock, by a distance, and are close competitors, as confirmed by recent tender outcomes.

(E)                                     Internal documents

(E.i)       The Parties submitted a partial set of tender-specific documents

(441)            The Commission requested the Parties to submit internal documents comprising, inter alia, documents produced by each company in the course of tendering in order to assess business opportunities offered to them in tenders, to evaluate the competitive environment and strategy, and to seek internal approval for action, including bids, to be undertaken at the different steps of a tender (so-called "limits of authority" or "LoAs").273 The Commission's request covered these documents for the period 2008-2017.274 In response, the Parties have provided a set of documents  which only cover a limited part of the tenders at issue. Nevertheless, the limited set  of documents on file illustrates the close competitive relationship between Siemens and Alstom.

(442)            The following table lists the Parties' respective LoA documents that were submitted to the Commission:Table 22: LoAs provided by Siemens and Alstom in relation to high and very high-speed rolling stock tenders

Source: list based on the data submitted by the Parties

(443)            The list in Table 22 covers worldwide high and very high-speed tenders (excluding China, Japan and South Korea) in the period 2008-2018. The Parties produce LoAs even in the context of calls for tenders in which they ultimately opt not to bid. In those instances, the relevant documents indicate the reasons for not bidding, […].

(444)            Out of the […] tenders in which the Parties faced one another, the Parties have submitted a very incomplete set of documents: in one instance ([…]) they have not submitted any LoAs; in five instances ([…]) they submitted LoAs generated by only one Party; in only one instance, […], which they both lost to Talgo, they submitted a complete set of LoAs from both Parties. Nevertheless, the Commission was able to complement Siemens’ submission in relation to the 2014 SBB tender by retrieving an internal document of Alstom relating to the same tender, which the Parties lost to Stadler.

(E.ii)      The documents submitted confirm that the Parties are close competitors

(445)            Although the Parties' internal documents only partly cover the tenders in which they competed in the past 10 years, they provide evidence that the Parties compete very closely. They also contain evidence that other suppliers appear more distant competitors.

(446)            First, certain documents contain Siemens' internal ex-ante assessments of each prospective bidder's winning probability. […]:

Table 23: Siemens' internal Ex-ante evaluation of suppliers' probability of winning

Sources: LoAs from the Parties275; Parties' response to the SO, Chapter B.2, paragraph 339

(447)            It follows that, […].

(448)            In contrast, other competitors generally appear […].

(449)            Second, […].

(450)            In sum, Siemens’ […]. (451)              […].276 […].277

(452) Siemens' internal analysis shows that the  competitive  relationship  between  the  Parties in very high-speed rolling stock focused […].

(453) […], the company's internal assessment of Alstom's strategic interest in the tender estimates that the tender constituted […].278 Siemens' internal assessment thus concludes that […].279

(454)      […].280  Siemens ultimately won the tender in a process […]. (455)              […]281

(456)      […].282

(457) Finally, the Commission  notes that Alstom's  innovation into the  TGV du Futur,  […]283  […].284 […].285

(458) Third, several documents also illustrate the Parties' more distant competitive  relationship with other competitors. […]. Thus, for example, Alstom's internal documents indicate that CAF […];286 […].287

(459)      The Parties contest this analysis and submit other internal documents […]288. […]. (460)              […].

(F)                                      Conclusion on closeness of competition

(461)   On the basis of the above, the Commission considers that Siemens and Alstom are close competitors, in particular, for very high-speed rolling stock. In combination with the Parties’ very high market shares, this reinforces the likelihood that the Transaction will generate significant horizontal unilateral effects in both the overall market encompassing both high-speed and very high-speed rolling stock (given that the Parties closely compete with each other on the very high-speed segment of this market) and in the potentially narrower market for very high-speed trains.

5.3.3.3.             Barriers to entry and new entry

(462)   The Notifying Party argues that entry into the EEA is facilitated by the fact that

(i)  applicable procurement procedures do not exclude non-European suppliers, (ii) EU procurement rules prohibit localisation requirements, and (iii) Technical Specifications for interoperability ("TSIs") ensure a level of interoperability across the European rail network. Furthermore, the Notifying Party considers that CRRC's potential entry in the EEA is likely and should be taken into account to mitigate the effects of the Transaction.

(A)                 Barriers to entry

(463)   Several barriers to entry as regards high-speed and very high-speed rolling stock  have been identified in the course of the market investigation. Among the barriers identified, a number apply generally to any activity in high or very high-speed rolling stock, regardless of location. These include the costs to develop rolling stock and the requirement to hold an adequate track-record. Other barriers to entry are specific to the EEA market and include the European authorisation scheme for rolling stock, the need to have an EEA-specific track-record, informal localisation requirements and the privileged relationship between a number of EEA-based suppliers and national operators in their home countries.

(A.i)       Generally applicable barriers to entry

(464)   First, rolling stock manufacturers unanimously confirmed that the development of high and very high-speed rolling stock requires significant investment, technical capabilities and time.289 According to [...], "financial requirements are becoming difficult to fulfil for middle-size companies. This might be one of the reasons why many sector companies are merging in order to deal with this, leaving a less competitive panorama".290

(465)   In particular, from the perspective of a new entrant, the investment required for the development of high-speed and, in particular, very high-speed trains is constrained  by the limited scope to recoup costs due to the infrequent number of tenders for   rolling stock. This explains why a number of rolling stock manufacturers have not entered the very high-speed market. As [...] explains, "[…]".291

(466)   Second, when organising a tender for the procurement of high and very high-speed rolling stock customers require that prospective bidders demonstrate that they have a track-record of previous supplies ("customer references"). References provide customers with a confirmation that a given supplier has experience in executing similar projects and will thus be able to meet customers' requirements in similar projects.

(467)   Competitors explain that they are required to put forward references of prior supplies of trains in effective operation at the time of the bid.292  This requirement intervenes  at the pre-qualification phase, i.e. at the time when prospective bidders are requested to provide information that allows customers to assess each supplier's capability to offer the demanded products/services.293 […]. As [...] explains, "if [a] manufacturer lacks commercial references, it would not be qualified to bid in the tender. This means that, despite the resources and time invested in developing a new HS or VHS train model, manufacturers would not be ready to take part in certain tenders if they do not have the required commercial references".294

(468)   All customers have confirmed that references are used to assess prospective  suppliers' capabilities295 and that the references required are specific. Thus, in tenders for very high-speed rolling stock, customers require references for very high-speed trains and dismiss references for other types of rolling stock. In tenders for high- speed trains, customers are less specific and also consider references of very high- speed rolling stock sales.296

(469)   The Parties' internal documents confirm this analysis. […].297 References are thus leveraged by suppliers to show their standing and credibility in other tenders.

(A.ii)      EEA-specific barriers to entry

(470)   First, the main barrier referred to in the market investigation related to authorisation under EEA and Member States technical and safety rules. High and very high-speed rolling stock cannot be placed in service in the EEA unless suppliers obtain regulatory authorisations at EU and Member State level. The authorisation process is primarily governed by the Interoperability Directive,298 TSIs299 and the Safety Directive.300  The certification and authorisation regime is three fold:

(a)                        once manufacturers request authorisation for new rolling stock, a  Notified Body ("NoBo")301 assesses the rolling stock's (or "subsystem" under the terminology used by the Interoperability Directive302) conformity with the technical rules included in the TSIs. TSIs set out the main technical and operational specifications to satisfy the essential requirements regarding safety, reliability and availability of the railway system, health, environmental protection, technical compatibility, and accessibility set out in the Interoperability Directive. Once TSI conformity is verified, NoBos establish an "EC certificate of verification";

(b)                        in addition to TSI conformity, rolling stock must comply with national technical rules, which are included in National Reference Documents ("NRDs"). Designated Bodies ("DeBo") appointed by Member States assess  the conformity of rolling stock with the applicable NRDs. Once NRD conformity is verified, DeBos establish a "National certificate of verification";

(c)                        in parallel with the verifications, the safety of rolling stock must be assessed by an independent assessment body ("ASBO"). ASBOs conduct a safety risk assessment and issue a report setting out safety recommendations which manufacturers must then implement in order to obtain a "Safety Acceptance declaration".

(471)   It should be noted that given the extension of the scope of TSIs and the  harmonisation of requirements, the number of national rules in the EEA is expected  to decrease.303 For instance, the European Union Agency for Railways ("ERA") issued an interim report on the cleaning up of national rules showing that the number of different national rules applicable to new vehicles in 17 Members States were significantly reduced.

(472)   Nevertheless, the vast majority of respondents to the market investigation, including all high and very high-speed rolling stock competitors, have confirmed that the European certification and authorisation regime constitutes a barrier to entry.304 Even though certain steps in the authorisation process may be undertaken after placing a bid, the large majority of competitors have confirmed that bidding on the basis of  TSI and NRD compliant rolling stock is a significant advantage in tender procedures.305 As explained in recitals (113) to (115) above, EEA-specific standards induce both a limitation on importing trains and higher costs. These considerations also explain that Union and national regulatory authorisation constitute a significant barrier to entry.

(473)   The Parties correctly explain that customers typically do not expect suppliers to bid with an already certified solution.306 This is because platforms need to be customised to a certain extent to meet a customer's specifications and the specific solution cannot therefore obtain certification at the bidding stage, but rather at any later stage before putting the final solution into service. Furthermore, the Notifying Party indicates that TSI and national rules evolve over time and suppliers typically adapt an existing platform to a new TSI only if justified by an award.

(474)   However, for a large portion of rolling stock customers, even if the specific train model being purchased is not fully certified under TSI and national safety rules at the time of the tender, the fact that a prospective supplier's other (or previous) models are certified/authorised to operate in the EEA provides a competitive advantage.307

(475)   Second, prospective bidders are required to provide sufficient references in terms of prior sales in the EEA. 85% of customers have indicated that they have never pre- qualified a company with no prior sales of high and very high-speed trains in the EEA to bid in their tenders.308 Furthermore, most customers indicate that, in EEA tenders, references from outside of the EEA are not taken into account to assess a bidder's credibility.309 This is due to the EEA's specific technical requirements. As […] explains, "the differences in requirements across continents are considered too large, so that references from other economic areas are not taken into account. The experience of a supplier with the approval authorities in EEA or the approval Management is also a crucial point, as the requirements of the authorities in the EEA are particularly strict".310

(476)   This requirement therefore constitutes an even less surmountable barrier to entry for manufacturers with no prior sales in the EEA, as explained in  more  detail  in  Section (B) in relation to CRRC.

(477)   In this context, the majority of customers that expressed an opinion confirmed that suppliers that have sold more trains (in volume), that have the most trains in  operation in the EEA and that have sold more trains to different customers in the EEA have an inherent competitive advantage. This is because they are judged to be more competent, reliable and, therefore, more credible bidders.311

(478)   EEA references are required by both large, established national operators, as well as new operators. […] thus explained that "[a] high sales figure is […] a proof for the maturity of a product. In addition, it can be assumed that the supplier has   optimized the production processes and project management and has eliminated important project risks. […] [S]ales to a large number of different customers demonstrate that  a supplier knows the requirements of different markets very well or is well networked in different markets and that its price is very competitive".312 […].313

(479)   Third, despite EU procurement rules prohibiting customers from disqualifying bidders that do not have local production assets, respondents have indicated that certain customers informally favour bidders that do or plan to invest in local facilities. According to them, having a local presence, even if not a formal requirement, can constitute an important aspect of a bid or a competitive advantage for the bidder.

(480)   This is supported by the Parties' internal documents in relation to certain tenders, […].314

(481)   Fourth, a number of rolling stock manufacturers are owned or have close ties to certain Member States and national train operators. In the course of the market investigation, competitors and customers have noted Alstom’s partial ownership by the French State and numerous relationships with SNCF. Similarly, Siemens’ privileged relationship with Deutsche Bahn has been noted by several respondents. The privileged relationship of other suppliers has also been noted in relation to Spain (Renfe vis-à-vis Talgo), Italy (Trenitalia vis-à-vis AnsaldoBreda, now Hitachi- Ansaldo) and Switzerland (SBB vis-à-vis Stadler). National political support might thus have deterred the entry of established rolling stock manufacturers in the high  and very high-speed market in the countries where such relationship exists.

(482)   The Parties consider that no such "special relationships" exist and that, even if they did, this would not influence the conditions of competition going forward.  The Parties observe that there an increasing number of bidders participate in tenders organised by national train operators that supposedly have a "special relationship" with national suppliers, which would show that competitors are not discouraged by any hypothetical special relationship.315 In any event, the Parties argue that the Merged Entity will draw no competitive advantage in the foreseeable future from alleged special relationships because […].316

(483)   The results of the market investigation indicate that political support for the procurement of high-speed and very high-speed trains to national suppliers are perceived to constitute a significant barrier to entry. [...] explained that "[…]".317 Furthermore, […] explains that "[…]".318

(484)   As regards the Parties' argument in respect of the perceived increasing number of bidders in tenders organised by national train operators that supposedly have a "special relationship" with national suppliers, the following observations apply:

(a)                       there have been […] bidders on average in 5 tenders organised by SNCF, Deutsche Bahn, Renfe and Trenitalia since 2008. […];

(b)                      although the […],319  they still were respectively awarded to Stadler and Talgo.

(485)   With respect to future tenders, the Parties' assertion that […].

(486)   Furthermore, the Parties' privileged position vis-à-vis their respective home country's operators translates into a competitive advantage that supports their position with other customers. Alstom's and Siemens' continuous stream of orders from SNCF and Deutsche Bahn provides them with an unparalleled track-record which they can leverage when tendering, both within the EEA and in the rest of the world.320

(487)   It therefore results from Section (A) that the overall high and very high-speed rolling stock market, as well as the narrower market for very high-speed rolling stock, are characterised by high barriers to entry.

(B)                  Potential entry by Asian suppliers in the EEA (B.i)              The Notifying Party's arguments

(488)   The Parties assert that the potential entry of Asian suppliers should be assessed over  a 5 to 10 years period given the dynamics of the high and very-speed rolling stock market.321 It considers that barriers to entry are surmountable. In particular, it argues that (i) there is no reason to believe that technical standards in China, Japan or Korea are lower than in the EEA; (ii) EEA technical requirements apply outside of the  EEA, with non-EEA based customers requiring compliance with EU TSI   standards;

(iii)   customers accept worldwide track-records to assess the credibility of prospective bidders; (iv) customers do not require suppliers to bid with an already certified solution; (v) local presence is not a determining factor for competition in a tender.

(489)   In particular, the Notifying Party argues that the entry of CRRC, the Chinese rolling stock manufacturer, in the EEA will mitigate the effects of the Transaction. In particular, the Notifying Party argues that, after developing its own high and very high-speed trains using European technology, CRRC is now exerting competitive pressure globally by concluding technological cooperation agreements in the EEA and the US. It argues that CRRC is advantaged by its low cost base, is increasingly bidding in high-speed tenders and is targeting the EEA in particular for expansion as shown by its candidacy to bid for the HS2 project.

(490)   In addition, the Parties claim that Hyundai Rotem is also a likely new entrant because

(i)    its trains are also based on European technology and (ii) Hyundai Rotem sold DMUs and metros to EEA-based customers.322 They also list Kawasaki as a likely new entrant.323

(491)   Finally, the Parties consider that Asian rolling stock suppliers are in the same  position as Hitachi prior to successfully entering the EEA market.324

(B.ii)      On the relevant time period to assess timeliness of entry

(492)   Under paragraph 74 of the Horizontal Merger Guidelines, the Commission examines whether entry would be sufficiently swift and sustained to deter or defeat the exercise of market power. What constitutes an appropriate time period depends on the characteristics and dynamics of the market, as well as on the specific capabilities of potential entrants. However, entry is normally only considered timely if it occurs within two years.

(493)   The Parties argue that the appropriate time period in the high-speed market should be 5-10 years because tenders are infrequent. The Parties consider that this would be justified because the Commission uses a 10 years period to assess market shares.

(494)   For a third party to be considered a potential competitor, market entry would need to take place sufficiently fast so that the threat of potential entry is a constraint on the Parties’ and other market participants’ behaviour. The high and very high-speed rolling stock market is characterised by infrequent but large tenders for the procurement of trainsets, whose lifecycle ranges up to 30-40 years. This means that, absent meaningful competitive constraints in upcoming tenders, the loss of competition resulting from the Transaction would have immediate and lasting effects on customers.

(495)   In this context, the Commission observes that Alstom has been claiming that Chinese entrants should be expected in the EEA for almost a decade. In Case M.5754 - Alstom/Areva, the Commission noted that "[a]s regards the market for rolling stock, the parties state that some newcomers are expected to enter into the EEA market. This concerns, in particular, Chinese players such as [the predecessors of CRRC: China North Locomotive and Rolling Stock Corporation and China South Locomotive and Rolling Stock Corporation]. […] Concerning high-speed trains, it should be pointed out that bidding processes are very infrequent and involve high volumes/value. Therefore, a new entrant could obtain a significant market share by winning a single tender in the EEA".325 Almost a decade has past since this decision, without any material entry in the EEA by Chinese players in high and very high- speed rolling stock.

(496)   Timeliness of entry can be assessed in light of the timing of upcoming tenders. As indicated in recital (283), forecast demand in the EEA is accounted for by prospective tenders, a large portion of which are expected to take place by the year 2020. […]. The farther predictions are based in time, the more uncertainty about their precise timing. Intended projects may also be delayed or abandoned.

(497)   Given the market's characteristics and dynamics, absent very likely and large-scale entry within the next […] years, the potential available competition would not exercise a sufficient constraint on the Merged Entity in the most likely upcoming worldwide tenders. As shown in Section (B.iii), the entry of CRRC or other Asian suppliers on a sufficient scale to constrain the merging Parties is extremely unlikely within this timeframe. This is particularly true in relation to the EEA, due to specific barriers to entry.

(498)   urthermore, the Parties' proposed timeframe for entry, which extends to up to 10 years, suggests a long-term assessment, going beyond all foreseeable future tenders  in the EEA and the rest of the world. It therefore relates to a point in time where the prospects of entry are extremely uncertain. Furthermore, there is no more concrete evidence supporting the likelihood of entry or expansion of CRRC or other Asian suppliers in the next 10 years compared to the next 5 years. Therefore, even if a 10 years timeframe was considered, new market entry could not be deemed sufficiently likely to exercise a significant competitive constraint on the merged entity.

(499)   It follows that the timeframe for the assessment of potential entry proposed by the Parties can neither constitute the appropriate point of reference, nor allow foreseeing any potential entry.

(B.iii)     Results of the market investigation and the Commission's assessment

(500)   Under paragraph 68 of the Horizontal Merger Guidelines, for market entry to be considered a sufficient competitive constraint on the merging parties, it must be shown to be likely, timely and sufficient to deter or defeat any potential anti- competitive effects of the merger. However, in this case, the barriers to entry described in Section (A) are particularly steep for CRRC, Hyundai-Rotem and Kawasaki, which the Parties argue are likely entrants. Their entry on a sufficient  scale and timely fashion is extremely unlikely in light of (a) the Parties' own internal assessment,  (b)  CRRC's  lack  of  credibility  as  a  prospective  bidder  in  the EEA,

(c)       CRRC's own position and strategy outside of China and (d) Hyundai-Rotem's and Kawasaki’s absence from the EEA.

a)                      The    Parties'    internal    documents    confirm    that    CRRC   exercises    no competitive constraint

(501)   The Notifying Party's internal assessment of CRRC confirms that it is unlikely to create a timely and sufficient competitive constraint post-Transaction.

(502)   The Parties' internal documents contain multiple reports of CRRC's stated intentions to expand its activities outside of China and concerns that CRRC may expand its global footprint. Internal documents put forward by the Parties contain observations about China's or CRRC's "ambition", note CRRC's rapid growth in China and its purported intention to "target" entry in Europe326. The Parties' internal documents also report […]327.

(503)      […].

(504)      […].

(505)      […].328

(506)       In response to the Statement of Objections, the Parties consider that this analysis underlines […].329 […].

(507)     This is particularly true in respect of the EEA, where high and very high-speed rolling stock procurement occurs for operations on pre-existing infrastructure,    mos often under public procurement rules. […].330  As stated in recitals (274) and seq.,

CRRC […].331

(508)                             Siemens thus recognises internally […].332

(509)                             The reasons for CRRC's difficulties in attempting to enter the EEA market are further detailed […].333

(510)                             Furthermore, Siemens estimated […].334 […].335 Siemens thus recognises internally that […].

(511)                             The Parties argue that, […], many more internal documents warn of CRRC's ambitions outside of China, noting its […].336 […].

(512)                             It follows that the Parties' […].

b)                      CRRC is not a credible prospective bidder in the EEA

(513)                             CRRC does not have a TSI or NRD compliant high-speed or very high-speed platform, nor has it requested certification in the EEA for any of its products. In the rest of the world, CRRC's sales have remained limited and it does not have a single high-speed train in operation outside of China to this date.337 In particular, a large number of high-speed projects involving Chinese interest have been cancelled  around the world.338 Ongoing projects in which CRRC is reportedly involved have stalled.339

(514)                             Although, as the Notifying Party points out, […]. As shown in recitals (501) and seq., the Notifying Party's own internal assessment […]. Overall, in accordance with the Notifying Party's internal assessment, […].

(515)                             The majority of respondents to the market investigation therefore consider that CRRC is not currently a credible bidder in high and very high-speed rolling stock tenders. Rolling stock manufacturers (including CRRC itself) unanimously consider that it will take CRRC more than 5 years to become a credible bidder in the EEA. Obtaining certification alone is a lengthy multi-year process.

(516)                             The Parties observe that customers are more optimistic and believe that CRRC could become credible within 3 to 5 years. However, customers have confirmed that, over the past 10 years, none have even engaged in discussions with CRRC for the   suppl of high or very high-speed trains, let alone pre-qualified the company to bid.340 […].341  […]342 […].

(517)                             The Parties nevertheless assert that CRRC exerts a potential competitive constraint because it has significant sales in China. However, customers have stated that they  do not take account of sales outside of the EEA when assessing the credibility of a prospective bidder in a high or very high-speed rolling stock tender.

(518)                             This was illustrated […].343

(519)                             Finally, contrary to the Parties' assertion, CRRC's situation is not comparable to that of Hitachi. Hitachi did not enter the high-speed and very high-speed rolling stock market in the EEA on its own, but only via its 2015 acquisition of AnsaldoBreda, an Italian company already active in this market. AnsaldoBreda already held or Hitachi- Ansaldo was later awarded high and very high-speed rolling stock contracts in Italy for train models (Zefiro and Fyra trains) developed not by Hitachi, but by Ansaldo- Breda (including in cooperation with Bombardier in the case of the Zefiro). If anything, Hitachi's example illustrates that, despite its involvement in the Shinkansen technology in Japan, Hitachi was unable to enter the EEA very high-speed market before it acquired a local company and platforms with a prior local track-record.

c)                      CRRC acknowledges that it is not a credible bidder outside of China

(520)                             First, […]. (521)              […].344

(522) Second, CRRC's inability to credibly participate in competitive tenders outside of  China on a standalone basis is further illustrated by […].

(523)      […].345

(524)      […].346 […].347

(525)      […].348 […].349

(526)      […].

(527)      […].

d)                      Hyundai-Rotem and Kawasaki are inactive in the EEA and exercise no competitive constraints

(528)                            The Parties assert that Hyundai-Rotem is a likely new entrant in the EEA because (i) it is familiar with European standards, (ii) it is present in the EEA mainline and  metro markets, and (iii) it has created a joint-venture with a Turkish company (Tuvasas) called EURotem that hopes to manufacture the next generation of Turkish high-speed trains.

(529)                            However, Hyundai-Rotem has never participated in a high or very high-speed tender in the EEA. In the course of the market investigation, customers with actual  tendering experience that expressed an opinion unanimously indicated that Hyundai- Rotem cannot credibly bid for either high or very high-speed trains. Customers also confirmed that Hyundai-Rotem never bid for a high or very high-speed tender in the EEA.350

(530)                            […] indicated that it did engage in discussions with Hyundai-Rotem for the supply of very high-speed trains,351 but Hyundai-Rotem did not apply for pre-qualification. Another customer indicates that it did pre-qualify Hyundai-Rotem in a very high- speed procurement tender a decade ago but that the company did not submit a bid.352

(531)                            The Parties base Hyundai-Rotem's alleged "familiarity" with European standards on the fact that Korea's first operating high-speed trains were manufactured by Alstom and that Hyundai-Rotem's was developed under an Alstom licence.353 However, this refers to the early development of high-speed rail in South Korea, from the mid-1990 to the early 2000s. Since then, and as early as 2002, Hyundai Rotem has developed its platforms on the basis of Korean technology.354 There is therefore no basis for the Parties' assertion that Hyundai-Rotem would hold particular knowledge of applicable EEA standards.

(532)                            Furthermore, EURotem was created in 2006 and built DMUs and EMUs for the Turkish State Railways. The notion that it would have "hopes to make inroads to  […] the European market" appears in an online publication that does not quote EURotem's representatives, contrary to what the Parties suggest.355

(533)                            Nonetheless, if Hyundai Rotem wished to enter the EEA (very) high-speed market, it would face the same barriers as CRRC, given its lack of any EEA-based reference, TSI-compliant platform or even experience with the European high-speed tendering process. However, to this date, Hyundai-Rotem has chosen not to participate in high or very high-speed tenders in the EEA. Hyundai-Rotem is therefore no more likely to enter the EEA than CRRC.

(534)                            The same considerations equally apply to Kawasaki, a Japanese rolling stock manufacturer, which the Parties also list as a potential entrant in their response to the Statement of Objections. Furthermore, Kawasaki can be considered no more likely to export the Japanese Shinkansen technology-based trains to the EEA than Hitachi. As explained in recital (519), Hitachi only became active as a high and very high-speed rolling stock supplier in the EEA and internationally after its take-over of the Italian company Ansaldo-Breda, which involved the acquisition of platforms developed by Ansaldo that the merged Hitachi-Ansaldo was subsequently able to sell in Italy.

(535)                            For the reasons set out in Section 5.3.3.3 (B) and in light of the results of the investigation, the Commission considers that CRRC, Hyundai-Rotem and  Kawasaki

lack the track-record and technical ability to compete against the Merged Entity in high and very high-speed rolling stock. CRRC's track-record outside of China remains extremely limited and restrained to a single award won not through competitive bidding, but as a result of government-level negotiations. […]. Hyundai- Rotem's lack of any attempt to participate in tenders outside of South Korea similarly illustrates its lack of credibility in non-domestic tenders. The same conclusion  applies to Kawasaki.

(536)                            These conclusions also apply even more significantly to entry in the EEA in light of the existence of significant and specific barriers to entry. These barriers are  illustrated by CRRC’s recent failure to pre-qualify to bid for the HS2 tender. The Commission therefore concludes that market entry by CRRC, Hyundai-Rotem or Kawasaki does not appear likely, timely or sufficient to deter or defeat any potential anti-competitive effects of the Transaction in both the overall market encompassing high-speed and very high-speed rolling stock, as well as in the potentially narrower market for very high-speed rolling stock.

5.3.3.4.             Buyer power

(A)                                    The Notifying Party's arguments

(537)                            The Notifying Party argues that European customers of high and very high-speed rolling stock have significant procurement experience and are increasingly cost- conscious. According to the Notifying Party, customers leverage their buyer power through tender procedures that enable them to safeguard competition and obtain the most competitive outcome in terms of price, quality and technology.

(538)                            In addition, the Notifying Party argues that the exercise of buyer power has led to downward pricing pressure in the EEA. It argues that price pressures originated mainly from the Parties' competitors in past tenders and is therefore likely to continue.

(539)                            The Parties also assert that customers have exercised buyer power in the past, switching suppliers, citing the case of Eurostar (which switched from Alstom to Siemens in 2010) and HS2 (which invited CAF to bid, despite initially rejecting its application to qualify, following the formation of a consortium between Bombardier and Hitachi-Ansaldo). […]. Finally, the Parties argue that the merger will not necessarily decrease the number of bidders in future tenders because as a result of the elimination of one independent bid in the tenders in which both Siemens and Alstom would have participated, competitors' probability of winning will increase and these competitors could increase their participation.356

(B)                                     Results of the market investigation and the Commission's assessment

(540)                            Under paragraph 64 of the Horizontal Merger Guidelines, countervailing buyer  power is the bargaining strength that a buyer has vis-à-vis the seller in commercial negotiations due to its size, its commercial significance to the seller and its ability to switch to alternative suppliers. Several elements concur to refute the existence of countervailing buyer power in the present case(B.i) The market investigation does not  support  the  existence of  countervailing buyer  power

(541)                            The results of the market investigation do not support the view that customers have sufficient buyer power to counter a price increase by the Merged Entity. In the Phase  I market investigation, half of rolling stock manufacturers that expressed a view indicated that customers exercise medium to weak buyer power, whereas only half estimated that it is strong.357 The majority of customers however considered that they do not have strong bargaining power when procuring high and very high-speed rolling stock.358 Furthermore, in the Phase II market investigation, customers were asked how they expected their bargaining power to be affected by the Transaction. Half of respondents considered that the Transaction would reduce their bargaining power.359

(542)                            In addition, customers appear to rarely switch suppliers. The only example provided in the market investigation related to the 2010 Eurostar tender,360 an example also cited by the Notifying Party. However, in 2010 Eurostar switched its procurement from Alstom to Siemens. Therefore, the only example of actual switching shows a customer using one Party to the Transaction as the alternative to the other. Instead of demonstrating the existence of countervailing buyer power, this shows that  customers will lose the main competitive alternative existing on the market pre- Transaction.

(B.ii) Special relationships between certain customers and suppliers further prevent the exercise of countervailing buyer power

a)                          The Notifying Party's arguments

(543)                            The Parties contest the existence of any special relationship between certain suppliers and their home countries' national rail operators. They argue that, if such relationships existed, the relevant countries should be excluded from market share calculations.361

b)             The Commission's assessment

(544)                            As indicated in recital (484), all tenders organised by Deutsche Bahn, SNCF, Trenitalia, Renfe and SBB since 2008 have been awarded to each of the corresponding national supplier (respectively, Siemens, Alstom, Hitachi-Ansaldo, Talgo and Stadler). Although, as the Parties point out, competitors also bid in tenders for these operators,362 none have been successful. This shows that despite being presented with options, national operators have not switched to alternative suppliers.

(545)                            Special relationships between national rail operators and domestic suppliers in  France (SNCF vis-à-vis Alstom), Germany (Deutsche Bahn vis-à-vis Siemens),  Spain (Renfe vis-à-vis Talgo), Italy (Trenitalia vis-à-vis AnsaldoBreda, now Hitachi-Ansaldo) and Switzerland (SBB vis-à-vis Stadler) appear due partly to historical reasons and partly to political support.

(546)                            Historically, SNCF and Deutsche Bahn procure trains that have been developed and designed specifically for them. As the Notifying Party explained in the Form CO, Alstom's Euroduplex TGV and Siemens' Velaro […].363  […]364 […].

(547)                            These tailored developments limit the ability of those customers to exercise buyer power since, by virtue of having co-developed high and high-speed rolling stock with the Parties, they have limited options to effectively change suppliers. As [...] explains, this is particularly true in the very high-speed rolling stock market: "[r]ailway companies do not have countervailing power vis-à-vis Alstom and Siemens, particularly in the VHS trains segment. Customers of VHS trains are national railway companies, such as the SNCF in France, Deutsche Bahn in Germany, Renfe in Spain or Trenitalia in Italy; and private railway companies, such as Eurostar or NTV. However, these companies do not have buying power vis-à-vis Siemens and Alstom, in particular, given the close relationship between national railway operators and national champions and the existence of partnership agreements (such as the innovation partnership entered into by SNCF and Alstom in 2016). In fact, the SNCF has only acquired VHS trains from Alstom, Deutsch Bahn from Siemens and Trenitalia from Ansaldo (in a consortium with Bombardier). Furthermore, Eurostar, which is run by a co-operation between French, UK and Belgian national railway companies, only invited Alstom and Siemens to bid for the supply of its new VHS trains".365

(548)                            The Parties argue that, if such relationships existed, the relevant countries should be excluded from market share calculations.366 However, doing so would not be  justified. Despite their longstanding supply relationships with Siemens and Alstom, Deutsche Bahn and SNCF have effectively opened their procurement to competition in certain instances. In 2008, Siemens' internal documents […].367 […]. Similarly, in 2015-2016, SNCF opened the creation of an innovation partnership for the design of the "TGV 2020" to competition. Although Siemens decided to not submit a bid, […].368 Alstom won the tender. Those instances show that the existence of privileged relationships does not preclude attempts at competitive procurement, but that so far these attempts have failed in France and Germany.

(549)                            In addition, the existence of a political support to national suppliers limiting national rail operators' freedom to choose non-domestic rolling stock manufacturers, is evidenced in the Parties' internal documents in relation to tenders organised In Italy, Switzerland and Spain respectively by Trenitalia, SBB and Renfe:

(a)                        Trenitalia: […]369 […].370 […].371 […].372 This assessment was further repeated in other Alstom LoAs.373 The same assessment is further alluded to in Siemens' […].374 […];

(b)                       SBB: Alstom's internal […] depicts its competition with Stadler […]. Because, according to Alstom's ex-post analysis, […],375 other factors of competition, including […], played an all the more significant part in the procedure. Stadler was awarded the order;

(c)                        Renfe: Siemens' […]376 […].377 […], describing […].378  […], as the Renfe order was awarded to Talgo.

(550)                            These relationships do not preclude competition. For example, prior to selecting Stadler, SBB procured high-speed rolling stock from Alstom. Similarly, Renfe has procured high and very high-speed rolling stock from Talgo as well as Alstom, Siemens and a CAF-Alstom consortium. However, […] the existence of political support or longstanding historical supply relationships does translate in a competitive advantage over other potential suppliers such that national rail operators appear reluctant to change suppliers.

(551)                            It follows that, whether due to historical and/or political factors, as shown in tender results and […], domestic rolling stock suppliers in France, Germany, Italy, Spain and Switzerland enjoy a special relationship with national rail operators that effectively limits the latter's ability to exercise buyer power.

(B.iii)     Customers' bargaining power will be limited in light of tender participation

(552)                            The exercise of buyer power requires that customers have sufficient alternative options other than the Parties and can credibly switch or threaten to switch suppliers after the Transaction.

(553)                            First, out of 11 tenders in the period 2008-2018 in the EEA and Switzerland:

(a)           […] tenders ([…]) had only one bidder ([…]) and thus could not possibly allow for the exercise of any buyer power;

(b)           […] tenders ([…]) had only two bidders, allowing only for extremely limited alternatives for the customer. In […] of these tenders, […].

(554)                            This is consistent with the Parties' greater participation in tenders than any other supplier. Furthermore, the Parties met and competed head to head in a large portion  of tenders for high and very high-speed rolling stock in the EEA since 2008, meeting in […]% of all tenders (including […]% of all very high-speed tenders). Based on past data, the Transaction would therefore eliminate the customer's sole alternative supplier in a non-negligible number of cases, thereby significantly reducing any ability to exercise buyer power.

(555)                            Overall, there have been […] bidders on average in high and very high-speed rolling stock tenders in the EEA and […] at the worldwide level in the 2008-2018 period. Either one or both Parties participated in the vast majority of these tenders, namely […]% of tenders on the overall market for high and very high-speed tenders in the EEA and […]% worldwide, and the totality of very high-speed tenders in the world. This means that, on average, options available to customers will significantly  reduce in upcoming tenders, the merger either lowering the number of bidders, or  reinforcing the position of the Merged Entity. As a result, customers will be unable  to counter the Merged Entity's increased market power.

(556)                            Second, even rolling stock manufacturers that consider that customers do exercise strong buyer power prior to the Transaction have not confirmed the Notifying Party's assertion that this has translated into downward pricing pressure. Instead,  competitors have mentioned that customers are able to impose unfavourable payment conditions. In relation to prices, the vast majority of manufacturers consider that the price of high and very high-speed rolling stock has remained stable in the past 10 years.379 It is only when considering the full lifetime cost of rolling stock, i.e. including the cost of maintenance services and spare parts that a number of competitors consider that prices have decreased over the past 10 years due to lower maintenance costs.380

(557)                            The Parties argue that the price per seat of high and very high-speed rolling stock has […]% over the past five years. This observation, which the Parties submitted in response to the Statement of Objections without providing references to underlying data or documents,381 does not support their assertion that customers will enjoy sufficient buying power after the Transaction. By reinforcing the Parties' position  and restricting the number of bidders, the Transaction will reduce customers' bargaining position. Even assuming that prices decreased before the Transaction, the merger's impact is likely to negatively affect prices compared to the situation absent the Transaction.

(558)                            Third, suppliers participate in tenders in which they believe they have a realistic chance of success. Contrary to the Parties' assertion, their rival's assessment of their own probability of winning tenders will not be improved by the Transaction. In the course of the market investigation, competitors have unanimously indicated that the Transaction would impact them negatively,382 and lead to higher prices and reduced innovation due to the strengthening of the Parties' position. In particular, competitors are concerned that, due to the Merged Entity's increased bargaining power vis-à-vis customers, their own market access (especially for smaller companies) will be more difficult.383

(559)                            Regarding the Parties' argument that the number of options for customers in a given tender will not decrease after the Transaction because, after the elimination of one independent bid amongst Siemens or Alstom, rivals will have an incentive to  increase their participation, the Commission considers the following. As a first remark, in the tenders in which Siemens and Alstom participated, the fact that certain competitors did not participate indicates that these companies had a lower expected profit compared to Siemens and Alstom. This suggests that rivals had a less competitive option for the customer in these tenders. As a result, even if such competitors were to step up after the transaction, their offers are likely to be of lower quality or higher cost (or both) compared to the bid lost due to the merger. As a second remark, the Commission notes that competitors have lower historic participation  rates  (let  alone  winning  rates)  compared  to  Siemens  and    Alstom.

Therefore, even if some of these rivals were to increase their participation after the transaction, they are unlikely to materially offset the reduction in participation generated by the elimination of one independent bid amongst Siemens or Alstom.

(560)                            Therefore, some potentially increased participation by more distant competitors after the transaction is unlikely to offset the loss of independent competition between the two most important and closest high and very high-speed competitors.

5.4.                 Conclusion

(561)                            For the reasons set out in Section 5.3, and in light of the evidence made available during the investigation, the Commission considers that the Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects, in relation to the overall market for high-speed and very high-speed rolling stock, including the narrower market of very high-speed rolling stock in the EEA and on a worldwide basis (excluding China, Japan and South Korea).

6.                      MAINLINE SIGNALLING

6.1.                 Introduction

(562)                            Rail signalling systems provide safety controls on rail networks. At their most basic level, these systems avoid collisions by preventing two trains from meeting on the same section of track. Rail signalling systems comprise both trackside and on-board elements.

(563)                            The rail signalling industry is characterised by the following key elements:

(1)   On the supply side, it is a concentrated industry with a limited number of players (Siemens and Alstom being the largest suppliers in Europe, followed  by smaller suppliers like Thales, Bombardier, Ansaldo STS384 and CAF)385 and high barriers to entry;

(2)   On the customer side, on-board signalling equipment is purchased by rolling stock manufacturers or train operators (depending on whether intended for installation on new trains or on existing train fleets), while the track-side signalling equipment is purchased by infrastructure managers (for mainline signalling). Deregulation of the rail markets has resulted in additional small (or smaller than traditional players) private operators in certain Member States.

(3)   The signalling industry has developed in the context of a history of national signalling systems (referred to as conventional or legacy systems). New signalling technologies have been developed at European level to harmonise  the various national systems, in particular the European Railway Traffic management System ("ERTMS") for mainline and freight which aims to provide interoperability in Europe.386 ERTMS has been promoted by the industry and supported by the Commission and is based on standards. The adoption of ERTMS has been slower than planned and the installed base in the EEA consists mostly of conventional signalling technology.

(4)   Interoperability among the various signalling elements and with the rolling stock running on the network has to be ensured.

(564)                            As further explained in Section 6.2, signalling equipment can be divided into mainline signalling which equips the national railway networks and urban signalling which equips the local railway networks such as metro and light rail.

6.1.1.          Mainline signalling

(565)                            Mainline signalling, refers to signalling systems that provide safety and controls on mainline railway networks (including dedicated high-speed lines). The following diagram provides an overview of the different elements of a mainline signalling system.

Figure 11: Elements of mainline signalling systems

 Source: Form CO, Chapter C1, Figure 1.

(566)                            The various elements of mainline signalling systems, or sub-systems, consist of interlockings, Automatic Train Protection ("ATP") systems and Operation and Control Systems ("OCS"). Interlockings and ATP systems constitute the safety level of mainline signalling, while OCS represents the control level. The various subsystems, their functioning, and the required certification and authorisations are explained in the following recitals.

(567)                            Interlockings: These are the core safety component of mainline signalling systems. Interlocking systems are wayside systems that protect and set routes for the safe movement of trains by controlling and preventing access to sections of the track to avoid collisions, including side-impact, rear, and head-on collisions.387

(568)                            Interlockings in mainline signalling systems typically work on a principle of splitting a track up into sections or "blocks". These blocks can be as short as 200m to 800m in stations and as long as several kilometres on open tracks. Interlockings ensure that no more than one train enters a block at any one time. Interlockings must interface  with adjacent or intersecting interlockings, and with other signalling systems such as ATP and OCS systems.388

(569)                            Modern interlockings are a combination of hardware and software and are electronic, computer-based. Interlockings work by (i) receiving information from wayside sensors (track circuits and/or axle counters) about whether a specific block is vacant or occupied by a train; (ii) calculating safe routes for trains based on that  information; (iii) controlling machines that move the rail at junctions to allow trains to transfer from one track to another; and (iv) issuing movement authorities to trains to allow them to travel, i.e. instructing through signals the train drivers how to proceed, e.g. to continue, to reduce speed, or to stop. Many networks still have a  large number of older interlockings installed. The most common of these older interlockings are relay interlockings.389

(570)                            ATP systems: The failure of train drivers to respond to commands by signals and excessive speeds have traditionally been significant causes of railway accidents. Train protection systems were developed to reduce that risk, namely that train drivers would fail to respond to signalling commands and ignoring track restrictions such as gradients or speed. ATP systems are designed to protect each individual train by ensuring that the train obeys the movement authority granted by the interlocking and the appropriate line speed of a track section. ATP systems include both on-board units ("OBUs") (comprising on-board computers) and wayside systems (comprising wayside transponders ("balises") and encoders, for example lineside electronic units ("LEUs") and radio block centres ("RBCs")).390

(571)                            A mainline ATP system comprises wayside equipment that receives the signalling commands from the interlocking and transmits this information either:

-        to a balise or transponder, which then transmits this information to the train ("intermittent ATP system"). The balise is a piece of equipment that sits between or alongside the tracks and transmits signalling information to an antenna attached to the train; or

-        to a wayside encoder (LEU or RBC) transmitting information, via cable or radio, to the train ("continuous ATP system").391

(572)                            The train also carries an OBU that receives the signalling information from the antenna and implements the safety procedures, such as sending warnings to the driver, or stopping or slowing the train. Different levels of ATP systems provide different levels of protection. A basic ATP system may cause an alarm to sound in the train cabin where the driver failed to obey a signal, a more advanced ATP system can intervene where a train driver fails to modify the train's behaviour by applying the emergency brake, and an even more advanced ATP system can control the speed of a train by applying the brakes of a train in response to a signal from the interlocking or based on maximum track speed information programmed into the system.392

(573)                            OCS: These are IT solutions designed for the overall management of railway networks and operate at a higher level than the other subsystems that form part of a signalling project, such as interlockings and ATP systems. OCS have monitoring components for signalling sub-systems and command components controlling signalling sub-systems. The core OCS functionalities respond to safety requirements,

i.e. OCS operate networks of interlockings and integrate the information generated  by interlockings and their field elements and ATP systems. Thereby, OCS can be connected to different ATP systems and a diversity of connected interlockings in a national or regional infrastructure according to the signalling rules and the operational context defined by the railway infrastructure manager. These functions may be referred to as operational or control-level functions. Additional functionalities, without safety requirements, that are used for the overall management of the railway to increase network efficiency are often also included in OCS. These may include automatic conflict detection and conflict resolution support, timetable management, decision support, and dispatching. These functions are often referred to as dispositive, or management-level functions.393

(574)                            The operational (or control-level) functionalities of OCS operate networks of interlocking, and the OCS is connected to the installed interlockings by means of interfaces. These may be proprietary to the suppliers of the OCS and/or the interlockings or, in the alternative, they may be standardised. The interlockings-OCS interface manages a list of controls and indications, relevant for OCS. Similarly, an interface may also be required between the OCS and the ATP systems (e.g. ETCS Level 2 has its own operator workplaces, connected to the RBCs, which usually need to be integrated into an existing OCS, or run in parallel to the OCS).394

(575)                            Certification and authorisation: Each subsystem requires certification and authorisation, which is typically needed for the signalling components included in  the system and for the signalling subsystem in its entirety, including the functionality of the subsystem and the interfaces between the various signalling systems or components in the network. The term 'authorisation' is used to describe the whole process, covering both (i) the certification by an independent body, both at EU level (for systems subject to the European interoperability directive, namely ERTMS systems) and at Member State level (for all signalling systems and components), that the signalling system complies with the relevant required technical standards, and (ii) the authorisation at Member State level by the National Safety Authority (NSA) to place the component or system in service. Authorisation occurs at the national level only after the certification has been completed.395

(576)                            Interoperability among the various signalling subsystems and interoperability with the rolling stock have to be ensured. Mainline signalling projects typically require installation of systems compatible with the signalling system on the wider network. Most countries have national operational rules and technical requirements for mainline signalling with which any project in that country must comply.396

(577)                            The mainline signalling industry is characterised by a standardisation process, in particular at European level. Measures have been taken to improve the interoperability and safety of national networks and to encourage the development of an integrated rail system leading to a single European rail area, as outlined in the 2011 transport white paper.397 With the adoption and implementation of the Fourth Railway Package the period of structural changes in the railway sector should be concluded. The technical pillar of the Fourth Railway Package, which reviewed and optimised the regulatory framework on interoperability and safety and strengthened the role of the ERA, has been already adopted.398 However non-standardised national Class B systems will remain on parts of the network for many years, and class B equipment for rolling stock will remain necessary.

(578)                            This European standardisation effort has primarily been at the ATP system level via the "control command and signalling" (CCS TSI) defining the ERTMS baseline and standards for interaction between ERTMS on board and track side equipment.  Further a more recent and ongoing initiative with the EULYNX standard is described in recitals (589) and (590), but this is at a very early stage of development.

(579)                            As a result of the diverse development of national standards for ATP systems, there are more than 50 ATP systems across Europe, including multiple systems within some individual Member States. Each legacy system is standalone and cannot interoperate with other legacy systems. A train must have an ATP OBU that is compatible with each wayside ATP system it will encounter. For example, a train running from Genoa to Rotterdam would have to be equipped with at least three legacy ATP on-board systems, to enable it to receive information from legacy wayside ATP systems in Italy, Germany and the Netherlands. In Europe, only Switzerland has switched off its legacy ATP system in favour of ETCS. The requirement that a train must have an OBU compatible with each country it enters raises operating and maintenance costs for cross border traffic: the installation of additional OBUs is costly and takes up space in the train cabin, and switching operating standards at national borders (or within a country to the extent there are multiple national systems) adds to travel time and requires train drivers to be familiar with the respective national signalling rules and "signalling language".399

(580)                            ERTMS has been developed to address the interoperability issues caused by legacy systems and enhance cross-border railway traffic, lower costs and promote competition between signalling suppliers. ERTMS includes standardisation of ETCS (applied throughout Europe), with a stable "baseline" of the specification that is the base for the European Deployment Plan of ERTMS.

(581)                            ERTMS originated with a 1989 working group of European transport ministers who suggested developing an interoperable ATP system for Europe. In order to develop and implement an interoperable system, it was necessary to create technical specifications supporting interoperability. The ERTMS specifications were  ultimately developed by the Union signalling industry ("UNISIG"), a group of European signalling companies (at the time, Alstom, Bombardier, CSEE, Invensys, Siemens and Thales) under the leadership of the Union and the ERA as the system authority and in close cooperation with railway stakeholders and the GSM-R  industry. Directives 96/48/EC and 2001/16/EC define the overall approach towards ERTMS. ERTMS is composed of the ETCS, which is an ATP with on-board and wayside systems and, for ETCS Level 2, GSM-R, a dedicated radio communication system.400

(582)                            The main benefits of ERTMS include interoperability between different national rail networks (for example an ETCS OBU on a French train can interoperate with the wayside ETCS equipment in Belgium), supporting interoperability between the equipment of different suppliers (for example an ETCS OBU from Bombardier can interoperate with wayside equipment installed by Alstom); and providing a common safety platform for taking steps towards further benefits (such as ATO, autonomous driving, moving block, satellite positioning, and harmonised braking behaviour of trains).401

(583)                            The technical specification for interoperability (a Commission Regulation) relating to the "control command and signalling" (CCS TSI) defines the ERTMS specification. ETCS systems must respect these specifications in order to meet the essential requirements and to ensure the interoperability of the Union's rail systems. National technical rules, in part driven by legacy signalling requirements, can produce  national specificities in the deployment of ERTMS.402

(584)                            ETCS systems have different levels and different so-called "Baselines":

(1)                      ETCS level: ETCS levels are defined based on how the wayside is equipped and based on how the information is transmitted to the train.

(2)                      ETCS Baseline: ETCS is largely software-based. Versions of the ETCS specifications are referred to as "Baselines". To ensure interoperability, the specifications are standardised functions, interfaces and performance requirements for the signalling system.403

Figure 12: Overview of ETCS (Level 1 and Level 2)

 Source: DG MOVE

(585)                            ETCS Level 1 includes a LEU that encodes or "translates" the signalling information received from the interlocking for standardised transmission to the Eurobalise, and then to the train. This signal aspect is then read by the ETCS OBU, referred to as a European Vital Computer ("EVC"), and is displayed on the driver's cab. ETCS Level 1 also requires some other equipment on the train (such as a radar, EVC, Juridical Recording Unit ("JRU"), which is the equivalent of an aircraft’s "black box"). Level  1 also includes a safe output to the braking system to ensure the train obeys the signalling information.404

(586)                            ETCS Level 2 uses GSM-R, the developed standard for radio based communication for trains in Europe, to provide continuous transmission of signalling information to  a train equipped with on-board ERTMS equipment. Encoding of interlocking information takes place via the RBC. The shift to radio based communication means that there is no need for either visible wayside signals or LEUs. As a result, the wayside infrastructure can be reduced when ETCS Level 2 signalling is installed. One benefit of this is that it is possible to increase the capacity on a line at lower  cost: the line can be divided into shorter blocks (which may allow for shorter distances between trains) without needing to install signal lights at each block. ETCS Level 2 requires some additional equipment on the train, e.g. a GSM-R mobile radio device, including an antenna. Eurobalises are still used in Level 2 systems, but only for positioning information.405

(587)                            There are proposals to introduce a third ETCS level. ETCS Level 3, like ETCS Level 2, would be based on a radio solution. The main difference is that, in ETCS Level 3, train integrity would be evaluated by a train-borne system, rather than wayside sensors, further reducing wayside equipment and simplifying interlockings. The train’s position, as in ETCS Levels 1 and 2, would be determined based on information received from Eurobalises and combined with accurate train-borne odometry. As in ETCS Level 2, the train’s position would be reported back to the RBC continuously. This constant updating of train integrity, position and speed would allow following trains to run closer to the one in front by adjustment of the movement authority information displayed to the driver. ETCS Level 3 is currently under development. Some infrastructure managers are testing ETCS Level 3 in pilot lines, but there is no clear timeline for the roll-out of ETCS Level 3. ETCS Level 3 may be specified the next time the ERTMS standards are updated, in 2022, and any roll-out of the technology in Member States will be after that date.406

(588)                            At the end of 2017 around 4 500 km of core network corridor407 lines were operational with ERTMS and some 7 000 vehicles were equipped or contracted with ETCS in the EU, a substantial part of which has been supported by EU funding. The current ERTMS European Deployment Plan (EDP) has the following deployment goals: 51 000 km of core network corridors and 66 700 km of the wider core network for 2030, and 123 000 km of comprehensive network for 2050.408 Figure 3 shows the value of ERTMS contracts in the 2012-2017 period.Figure 13: ERTMS Europe market size, contract value (EUR million)

(589)                            EULYNX is a European initiative by 12 infrastructure managers to standardise interfaces between components of an interlocking and between interlockings and other signalling subsystems, for example ATP.409

(590)                            The project aims to create a system architecture for interlockings, including standardised interfaces, with the ultimate goal of reducing lifecycle costs up to 50%, by the so-called "Reference Implementations", which allow for standardisation and digitalisation of interlocking interfaces and the possibility of implementation of different subsystems by different suppliers.410

(591)                            All mainline signalling suppliers, including the Parties, are investing in R&D activities. In addition, Shift2Rail is the first European initiative to deliver focused Research and Innovation and market-driven solutions by accelerating the integration of new and advanced technologies into innovative rail product solutions, meeting key objectives of the EU 2020 Strategy and EU Transport Policy.411 Some of the innovation-related activities in ETCS relate to the development of new baselines and releases of ETCS technology, as set out in Section 6.3.2.2(B.iii).

(592)      […].412

(593)      […].413

6.1.2.          Urban signalling

(594)    Urban, also known as mass transit, signalling systems ("urban signalling") provide safety controls for metro and light rail networks. They prevent collisions between trains and increasingly respond to other challenges faced by network operators such as network congestion, security, and capacity constraints. As such, urban signalling systems are increasingly designed not only to ensure safety, but also to allow operators to improve the utilisation of their networks by allowing more trains to move more quickly and efficiently.414

(595)    Urban signalling is principally a project-based business. Projects typically include project specific engineering, development and project management, manufacturing and/or   procurement   of   equipment,   installation   and   testing,   and      sometime maintenance services. Projects typically comprise a signalling system including multiple subsystems415  as well as on-board and trackside units.416

(596)    Urban signalling systems tend to involve a complete system tendered together rather than subsystems tendered separately. This reflects the fact that in urban projects, (a) the customer is the same for both on-board and trackside elements; and (b) urban Signalling projects are typically procured for a line or group of lines in their entirety including all the necessary elements for that line.417

(597)    In urban transport, there is no interoperability requirement between networks in different cities. Within a city network, trains typically run on self-contained lines, meaning that signalling systems also do not usually need to interoperate between lines. By contrast, tenders for the extension of a specific line on a given network  need to be compatible with the existing line. A non-incumbent supplier on this line would need either (i) to invest in an interface to interoperate with the signalling system existing on the line, or (ii) re-signal the entire line to compete for a line extension.418

(598)    Urban signalling projects are based on conventional technology or CBTC.

(599)    Conventional urban signalling systems were developed and employed based on a fixed block system. Similar to mainline signalling systems, the track is divided into segments called "blocks". Sensors (either track circuits or axle counters) are then placed on the track to determine whether any part of a train is occupying a block. Until such a block is free again, the next train cannot enter the block. This creates a fixed safety buffer between the train that is occupying the block and the following train.419

(600)    Figure 14 illustrates how conventional technology works in metro. The sensors will detect whether a train is on any section of a block. The next train’s on-board unit will only be told to advance (known as being given a "movement authority") when the upcoming block is completely vacant. This is because the system only recognises  that the block is occupied but does not identify where the train is within the block. The following train will therefore be unable to enter an entire block until the whole of the previous train has exited the block.420

Figure 14: Urban signalling (Metro) – Conventional technology

 Source: Form CO, Chapter C.2, Figure 1.

(601)    CBTC systems are based on so-called "moving" blocks that interact with the train speed and surroundings. These systems rely on constant radio-based communication between the train and the track to identify with more precision where a train is located at a given moment in time.421

(602)    The Institute of Electrical and Electronics Engineers ("IEEE") defines a CBTC system as a "continuous, automatic train control system utilising high-resolution train location determination, independent of track circuits; continuous, high-capacity, bidirectional train-to-wayside data communications; and train-borne and wayside processors capable of implementing automatic train protection (ATP) functions, as well as optional automatic train operation (ATO) and automatic train supervision (ATS) functions"422. IEEE publishes a CBTC "recommended practice" that lays out a number of key or minimum functionalities for the design and functional allocation of CBTC systems, without prescribing particular technical or engineering criteria. According to the recommendation, the main principles of a CBTC system include, among others, (i) a high resolution train location determination; (ii) communication  of this train location; (iii) determination of the movement authority for each CBTC- equipped train,  based on  train  location and inputs  from  external  interlockings; and

(iv)  communication of the movement authority to the specific train.423

(603)    As shown in Figure 15, the fixed block system is replaced by a system that calculates blocks based on the actual positions of the trains and the required braking distance (plus a buffer) (the so-called "moving block" system).424

Figure 15: Urban signalling (Metro) – CBTC technology

 Source: Form CO, Chapter C.2, Figure 2.

6.2.        Mainline signalling projects - Relevant markets

(604)    Both Siemens and Alstom have a broad product portfolio covering essentially all types of mainline signalling.

(605)    The Parties' activities in the EEA overlap in mainline signalling projects and products, specifically interlockings, wayside ATP (both legacy and ETCS), OBUs (both legacy and ETCS), OCS, and various products (namely track circuits, axle counters, point machines, and level crossings).

(606)    In the following section, the Commission analyses the product and geographic  market definition for mainline signalling projects, namely: (i) standalone interlocking projects; (ii) ETCS ATP wayside overlay projects425 (standalone ETCS ATP wayside); (iii) ETCS ATP wayside re-signalling projects426 including ETCS ATP wayside and interlockings; (iv) ETCS OBU projects; (v) and legacy OBU projects.

6.2.1.           Product market definition

6.2.1.1.     Segmentation between mainline signalling and urban signalling

(A)                                    The Notifying Party's views

(607)    The Notifying Party submits that mainline signalling should be distinguished from urban signalling because of different customers, different interoperability requirements, different technical requirements, and differences in tendering.

(608)    First, signalling equipment is purchased by different customers: mainline signalling projects are tendered by national railway infrastructure managers while urban signalling projects are tendered by local or regional operators of metro and/or light rail networks.

(609)    Second, mainline signalling projects require installation of systems compatible with the signalling system on the wider network. Most countries have national operational rules and technical requirements for mainline signalling with which any project in that country must comply. By contrast, urban signalling projects typically concern closed loop systems (either the entire urban network or an independent part thereof such as a single line or a group of lines). Compatibility with the existing network and compliance with national operating standards renders the design and installation of mainline signalling systems more challenging than for urban signalling systems.

(610)    Third, the technical specifications and complexity of mainline and urban signalling projects differ. Specific technical standards are being developed for mainline signalling systems, including ERTMS and EULYNX, which are not used in urban projects. The complexity in mainline signalling is linked to the compatibility and interoperability requirements and the complexity of the national railway network. In urban signalling the complexity is linked to capacity requirements (e.g. trains/hour) and automation levels.

(611)    Fourth, urban signalling projects are usually tendered as complete signalling systems, while mainline signalling projects are more frequently separated into multiple tenders. In particular, on-board and wayside systems are tendered separately and procured by separate customers and subsystems, such as ATP wayside and interlockings, are frequently tendered on a standalone basis.427

(B)                                     The Commission's decisional practice

(612)    In previous cases, the Commission considered whether the market for railway signalling could be further subdivided according to the rail network type.428

(613)    In Siemens/Invensys Rail, the Commission found that the technology required for railway signalling projects for mainline was more sophisticated than the technology for urban transit and that, therefore, the projects for mainline were more  expensive.429 The exact market delineation of the relevant product market(s) was ultimately left open as the notified operation did not raise serious doubts as to its compatibility with the internal market under any plausible market definition.430

(C)          Results of the market investigation and the Commission's assessment

(614)    The results of the market investigation broadly confirm the Notifying Party's views with regard to the segmentation based on rail network type.

(615)    The majority of respondents indicated that mainline signalling and urban signalling should be distinguished from one another. Respondents considered, similarly to the Notifying Party, that this distinction is based on the following factors:431

(1)          The technologies used in mainline and urban signalling differ even if they  share most of the same components and subsystems such as interlocking, wayside equipment, OBUs etc.432. For example, ERTMS systems are used in mainline signalling while CBTC is used in urban signalling.

(2)         Urban and mainline systems use different norms.433 Mainline signalling uses  the ERTMS and other legacy national standards, which are not used in urban signalling. Both fields use CENELEC standards for safety certification;434 however, these standards simply set criteria for the required safety levels and the type of safety cases that need to be certified for compliance with the standard but do not prescribe any particular technology.435 The IEEE standard 1174 applies to urban signalling, namely to CBTC.436

(3)         Mainline and urban systems have different interoperability requirements: mainline systems need to be interoperable with the entire railway network of a country while urban lines are usually self-contained and have no, or only a few junctures.437

(4)          Due to the different interoperability requirements, mainline systems are much more standardised than urban systems. For example, the IEEE standard is only a high level description of the three main components of a CBTC system leaving ample room for different proprietary technologies.438

(5)          Customers are different. In mainline signalling, the customers are the national rail infrastructure managers (and rolling stock operators and suppliers for OBUs) while in urban signalling systems the customers are the city transport operators.

(6)          Both mainline and urban systems can be technologically complex but in different ways. In mainline signalling, the main challenges are the interoperability with the entire network and the management of complex junctures.439 By contrast, in urban signalling the principal complexity results from automation (e.g. driverless metros) and increasing the throughput of the system (e.g. smaller headways between metro cars)440 without compromising on safety.

(616)    In summary, the two types of signalling systems serve different needs, are based on different technologies and standards, require different technical solutions and are  sold to different customers. These differences rule out demand side substitutability as urban customers cannot or need not use mainline signalling solutions in urban transport and mainline customers cannot or need not use urban solutions in mainline transport.441 Further, even though most suppliers are present in both fields, the differences between the two fields are substantial and thus exclude supply-side substitution.

(617)    Therefore, the Commission’s concludes that there is a distinction between mainline signalling and urban signalling.

6.2.1.2.     Segmentation between mainline signalling projects and mainline signalling products and services

(A)                                    The Notifying party's views

(618)    The Notifying Party distinguishes between mainline signalling projects, products,  and services.442

(619)    The Notifying Party considers that signalling projects should be distinguished from signalling products because the large majority of mainline signalling systems in the EEA are purchased on a project basis rather than on a product basis. Projects include the system adaptation, engineering, project management, and other services required to install, validate and put the system into operation. Products, on the other hand, are sold without supporting services such as engineering and project management.443

(620)    In relation to signalling services, the Notifying Party explains that signalling services are typically only supplied by the Parties as part of a warranty agreement included in a signalling project. Neither Party provides services for third party signalling systems and as a result are not active in the merchant market for signalling services.444 The Notifying Party does not, therefore, consider it necessary to discuss the services market further in the Form CO.

(B)                                     The Commission's decisional practice

(621)    In previous cases, the Commission made a distinction between  signalling projects and signalling products.445

(622)    The Commission considered that railway signalling projects are comprehensive solutions involving: project-specific engineering, development and project management, procurement of the necessary equipment, installation, testing and, in most cases, maintenance; while railway signalling products are signalling components used in railway signalling projects.446 The exact market delineation of  the relevant product market(s) was ultimately left open as the notified operation did not raise serious doubts as to its compatibility with the internal market under any plausible market definition.447

(C)        Results of the market investigation and the Commission's assessment

(623)    The results of the market investigation broadly confirm the Notifying Party's view that mainline signalling projects should be considered separate from mainline signalling products.

(624)    The majority of respondents indicated that mainline signalling products can be purchased as part of a signalling solution, but that they are also purchased separately as spare parts.448 […]explains that "[t]he signalling market is mostly a project-driven market. Signalling products are purchased separately from the system in three cases: End customers may purchase signalling products as spares to maintain their existing lines; A signalling system provider may buy non critical products that it does not have in its portfolio from another supplier; Customers [may buy] field equipment where they want the same product across their network for maintenance synergies (e.g. axle counters)".449 Among customers, […] confirms that spare parts and replacement parts/subsystems are purchased for maintenance purposes,450 and […] indicates that mainline signalling products are purchased through specific contracts with each manufacturer to maintain existing lines.451

(625)    In line with what the Notifying Party submits, and in contrast to sales of mainline signalling products, the mainline signalling purchased on a project basis include not only the equipment itself, but also the system adaptation, engineering, project management, and other services required to install, validate and put the system into operation. Infrastructure managers are interested in a signalling solution in which each element works seamlessly together as a whole. The building up of such a well- functioning mainline signalling system entails significant risk that customers are not willing to bear and prefer leaving to the mainline signalling supplier. The project management capabilities of a supplier are, in fact, a key factor used in evaluating bids.

(626)    As explained by […], there is a tendency to pass on "greater levels of responsibility for integration and project management to […] contractors on major signalling projects. Key benefits […]include: reduced external costs; reduced internal costs; and safety improvements".452 […] also submits that project management skills are "key to any signalling project but the larger a project becomes the more critical this role will be".453 […] explains in relation to the bundling of subsystems in single projects, that the main reasons for doing so include "shifting the responsibility for the works as much as possible to the suppliers".454 […] similarly explains that bundling separate subsystems in a single tender and project helps "reduce our interface risk between these two subsystems: suppliers are best placed to manage this risk between their  own subsystems".455

(627)    The Commission's therefore concludes that there is a distinction between mainline signalling projects and mainline signalling products.

(628)    The results of the market investigation were mixed as to whether mainline signalling maintenance services are supplied as part of a mainline signalling project. While the majority of competitors indicated that they provide mainline signalling maintenance services and/or spare parts together with mainline signalling projects, customers were evenly split on whether they sourced maintenance activities and/or spare parts together with mainline signalling projects.456 The results of the market investigation showed that mainline signalling services are generally purchased for a fixed period of time and the duration for which they are provided depends on the customer's requirements.457

(629)    In any event, since neither Party supplies signalling services to third parties, the question whether there is a distinct market for services can be left open as the Transaction will have no impact on the merchant market for the provision of signalling services.

6.2.1.3.     Segmentation by mainline signalling sub-systems

(A)            The Notifying Party's views

(630)    The Notifying Party submits that the market for mainline signalling projects should be further segmented between subsystems (in particular ATP, interlockings, and OCS) as there is no demand-side or supply-side substitutability between the different subsystems.458

(631)    First, subsystems are purchased separately although in some cases (e.g. greenfield lines and re-signalling projects) an infrastructure manager may also purchase a comprehensive signalling solution. According to the Notifying Party there is not, separate product market for bundles comprising two or more subsystems because there is no distinct demand or supply for bundled offers. The Notifying Party further submits that there is no pattern of customers in the EEA procuring specific subsystems together with other subsystems.459

(632)    Second, the suppliers that offer the different subsystems differ, with some suppliers offering all types of subsystems and others specialising in  a particular subsystem. The fact that some suppliers offer the whole range of subsystems does not indicate supply-side substitution. In fact, subsystems are highly complex and fundamentally different; they require different software and components, and different engineering and development. They also need to undergo separate authorisation processes. The Notifying Party submits that authorisation requirements for the various subsystems differ from one country to another and therefore there are differences in the competitive alternatives available to customers. The Notifying Party gives the example of a supplier of interlockings in a particular country that may not necessarily have legacy or ETCS ATP systems, while suppliers of ATP (legacy or  ETCS) or OCS in a particular country may not have a homologated interlocking in that country.460

(633)    Third, subsystems are purchased from different suppliers. The Notifying Party submits that as a result of the variation in competitive conditions that can arise across subsystems, it is not unusual for the interlockings, ATP systems and OCSs on a railway line to be provided by several separate suppliers.461 There are no unique advantages, according to the Notifying Party, for customers to purchase a combination of subsystems from the same supplier. Rather, in cases where a customer has decided to procure subsystems together, the advantages of doing so have not been directly related to the "bundle" but to other reasons, such as access   to EU funding, the need to replace several subsystems at the same time due to the existing systems reaching the end of their lifecycle around the same time; and the customer's attempts to limit administrative costs linked to the tender organisation in the context of greenfield projects. The Notifying Party points to ADIF and the projects for the roll out of new built high-speed lines in Spain as an example where the customer has tendered out all subsystems in one tender.462

(634)    In their response to the Article 6(1)(c) decision, the Parties also point out that the market investigation conducted in Phase I confirms that mainline signalling subsystems belong to separate product markets.463

(635)    In their response to the Statement of Objections, the Parties agree with the Commission’s conclusion that legacy OBU projects, ETCS OBU projects, legacy ATP wayside projects and standalone interlockings projects constitute separate product markets. They disagree, however, with the Commission’s product market definition with regard to ETCS ATP wayside projects, namely that ETCS ATP wayside overlay projects and ETCS ATP wayside re-signalling projects constitute separate product markets.464

(A.i)       ATP

(636)    With regard to ATP systems, the Notifying Party discusses a further segmentation between OBUs and wayside ATP, and between legacy and ETCS systems. The Notifying Party also considers a further segmentation of ATP between re-signalling and overlay projects, by project size and by ETCS level.

a)          ATP wayside and on-board systems

(637)    The Notifying Party submits that there is neither demand-side nor supply-side substitutability between OBUs and wayside ATP systems and the two should be treated as separate product markets. OBUs and wayside ATP systems have different functionality, they can be purchased from two different suppliers, and the competitor set for OBUs and wayside ATPs available to a customer may also differ for any  given network. One example given by the Notifying Party is Austria, where Bombardier supplies legacy OBUs, but does not supply the legacy wayside systems. The Notifying Party also points to the different customers for the two systems: OBUs being purchased by rolling stock manufacturers or train operators (depending on whether intended for installation on new trains or on existing train fleets) whereas wayside ATP systems are purchased by infrastructure managers. Also, while OBUs and wayside ATP must be compatible, the customers will select among those suppliers that can offer compatible OBUs, which may not necessarily be the same supplier as the supplier of the ATP wayside system on a particular network.465

b)          Legacy and ETCS systems

(638)    The Notifying Party considers that for OBUs and wayside ATP systems a further segmentation should be made between legacy and ETCS systems considering that they present significant technical differences and are not substitutable. The Notifying Party explains that ETCS ATP systems conform to published ETCS standards, and standardised interfaces are used between ETCS OBUs and the ETCS wayside elements. Legacy ATP systems were developed independently in different  countries, do not conform to standardised designs, and do not use standardised interfaces. The technical means of operation can vary significantly between legacy systems. An ETCS OBU can only communicate with an ETCS wayside system and, similarly, a legacy OBU can only communicate with a compatible legacy wayside system. A signalling system only works if the same type of ATP system is installed on the  trains and at the wayside. Both legacy and ETCS ATP systems often operate simultaneously on sections of a network, and similarly, some trains have both legacy and ETCS OBUs allowing them to operate on tracks fitted with either type of system.466

c)          Re-signalling and overlay projects – ATP wayside

(639)    The Notifying Party also discusses a further segmentation between re-signalling and overlay projects, but does not consider that separate product markets should be defined on that basis. It explains that a clear-cut line between re-signalling and overlay projects may not be possible and specific projects may often include both overlay and re-signalling components where the installed interlocking infrastructure is of varying age.

(640)    The Notifying Party explains that from a demand-side perspective, a customer may indeed find it more advantageous to launch a ATP wayside re-signalling project (namely a project bundling both wayside ATP and interlockings) when its existing interlocking infrastructure has also reached the end of its lifecycle and conversely, if the customer has more recently installed existing interlocking infrastructure, an overlay ATP wayside project (i.e. installing only an ATP wayside system which interacts with existing interlocking infrastructure) may be the more attractive (and cheaper) option to a customer. From a supply-side perspective, overlay projects  entail a cost advantage to the supplier already supplying or familiar with the existing interlocking on a particular line as it is necessary to develop an interface between the two subsystems for them to function. By contrast, in re-signalling projects, interlockings are replaced and the supplier of ATP wayside systems can rely on their own interlocking solution. The supplier with an already authorised/homologated interlocking solution may still have an advantage over a non-incumbent supplier that will incur the homologation costs also for its interlockings.467

(641)    The Notifying Party further submits that even when ETCS wayside ATP and interlockings are bundled together in a re-signalling project, it is "far from clear" that such bundles could form a separate product market from the perspective of demand- side and supply-side substitution. The Notifying Party also argues that in addition to interlockings and ETCS wayside ATP, no other subsystems (such as OCS) should be included in such bundles.468

(642)    In their response to the Statement of Objections, the Parties contest the  Commission’s conclusion that overlay and re-signalling projects constitute separate product markets. The Parties repeat the arguments presented in the Form CO and  their response to the Article 6(1)(c) Decision, and indicate that identifying separate markets for overlay and re-signalling projects is unsubstantiated on the basis of the evidence in the case file and does not reflect the nature of competition. They argue that neither demand side nor supply side factors support such a finding. The Parties refer  in  particular  to  mixed  responses  from  competitors  and  customers  in     the Commission’s market investigation, to major ETCS ATP wayside suppliers being active both in overlay and re-signalling projects and the same set of players bidding and winning both types of projects, as well as to the practice of suppliers forming consortia in the event that single suppliers are not able to supply all elements required in a re-signalling project on their own.469

d)          Segmentation by ETCS level

(643)    The Notifying Party also considers a segmentation of ETCS OBU and ETCS  wayside ATP systems by ETCS level, namely between ETCS Level 1 and ETCS Level 2 but concludes that distinguishing separate product markets on that basis would not be meaningful. While there is not complete demand-side substitutability, there is full supply-side substitutability between the two levels, with suppliers  usually offering both levels and OBUs typically designed to be compatible with both ETCS levels.470 The Commission does not either consider ETCS Level 3 for the purposes of product market definition, given the R&D nature of these activities, which rather fall under development and innovation activities within the different markets for ETCS ATP and OBU technology.

e)          Segmentation by project size

(644)    The Notifying Party finally also considers a possible segmentation by project size but concludes that defining separate markets on that basis would not be appropriate. The Notifying Party submits that any such distinction (i) would not reflect accurately the complex competitive dynamics of signalling projects in which different factors (such as the development and approval costs, the availability of interface information from the incumbent supplier, the availability of a standardised interface) influence the suppliers' behaviour; (ii) it is impossible to define a general threshold above/below which competitive conditions change; and (iii) there are numerous examples of small players winning large projects or of small suppliers teaming up and winning large contracts.471

(A.ii)      Interlockings

(645)    The Notifying Party submits that interlockings form a distinct product market whenever tendered standalone, but to the extent that interlockings are tendered together with ETCS wayside ATP (in re-signalling projects), they form an "inseparable bundle" and should be considered separately from the standalone interlocking product market.472

(646)    The Notifying Party considers that a further sub-segmentation by types of interlocking technology is not warranted as the market has almost completely moved from non-electronic relay-based interlockings to computer chip-based electronic interlockings.

(A.iii)     Segmentation between greenfield and brownfield projects

(647)    The Notifying Party considers that greenfield and brownfield projects are similar to re-signalling and overlay projects respectively and as such the same arguments   why

the latter segmentation is not meaningful apply also in relation to a possible segmentation between greenfield and brownfield projects.473

(B)       The Commission's decisional practice

(648)    In Siemens/Invensys Rail, the Commission considered the market for railway signalling projects and explained that it included four key systems, namely:

(1)         interlocking systems consisting of signals, trackside sensors, point machines, and electronic interlockings;

(2)           ATP, consisting of both conventional and ETCS ATP systems;

(3)            OCS; and

(4)            level crossing systems.474

(649)    The Commission also analysed whether the market should be further subdivided according to the rail network type (mainline/urban), the (interlocking) technology applied (non-electronic/electronic), and the size of the project.475 However, the exact definition of the relevant product market was ultimately left open.476

(C)            Results of the market investigation and the Commission's assessment

(650)    The Commission considers that mainline signalling projects should be further segmented by subsystem, namely ATP, interlockings, and OCS. For ATP systems, a distinction should also be made between OBUs and wayside ATP, between legacy and ETCS technology, and between overlay and re-signalling projects. A re- signalling ATP project covers not only ETCS wayside ATP but also interlockings. Each of these (sub-)segmentations constitutes a separate product market.

(651)    The market investigation shows that a majority of customer and competitor respondents consider that mainline signalling projects should be segmented by subsystem. There are, however, discrepancies as to the appropriate sub-segmentation of the mainline signalling project market477. Among competitors, for example, [...] agrees on segmentation by sub-system but indicates that this would give rise to at least three separate markets, namely "Conventional systems" (including conventional ATP and interlockings), "ERTMS systems", and "OCS".478 […], on the other hand, refers to mainline signalling being a "project oriented market" where "most of the tenders require a full and integrated solution" and concludes on that basis that segmentation by subsystems does not make sense.479 Among customers, for example, […]  and  […]  agree  with  a  distinction  between  interlocking  systems,  ATP   and

OCS480. Other customers take a different view, including [...], that indicates that "further segmentation [between signalling subsystems] is not currently feasible given the low level of standardization in the marke[t]".481

(652)    From the demand side, the different views expressed in the market investigation as to the sub-segmentation of the mainline signalling market are reflective of the procurement strategies of customers in terms of which subsystems they include in a single tender/project. While some customers procure complete systems, including the various subsystems, others tender subsystem by subsystem.482 Half of the customer respondents indicate that they purchase the different signalling subsystems  separately, while the other half indicate that they purchase complete systems or bundles comprising two or more subsystems.483 As an example, […] indicates that it purchases interlockings, ETCS components and subsystems, OCS and other systems separately,484 while […]indicates that it procures all subsystems together.485 [...] explains that certain subsystems are purchased together, for example ATP and interlockings, while other subsystems are purchased separately, in particular OCS486. […] indicates that due to technical reasons, ATP systems are purchased separately.487

(653)    Moreover, variability in procurement strategy also exists not only between customers but also by a given customer, depending on their needs and circumstances in a particular case. A single customer may adopt different procurement strategies from one tender to the next and purchase subsystems at times together and at other times separately. This is the case for […] that purchases sub-systems separately where they do not form part of a "Major Signalling project".488

(654)    The different ways in which customers procure mainline signalling subsystems is also reflected in the estimates provided by the Notifying Party of the share of subsystems purchased together or separately by different customers,489 as well as in the bidding data that the Parties have submitted.490

(655)    Despite the variation in procurement strategies, some competitors observe that even though each subsystem performs a specific function in the mainline signalling system, customers require mainline signalling solutions functioning as a whole and  as such require a full and integrated solution including all subsystems.491 Although customers may source subsystems from different suppliers, the entire signalling system with its various subsystems must work together. Compatibility between subsystems is therefore essential. One competitor, [...], indicates that from a demand- side perspective, segmentation by subsystem is unclear because (i) major projects are tendered  in  an  integrated  way combining  various  subsystems  and  (ii)  the way in which integration between subsystems is achieved requires proprietary solutions in the absence of standards for such integration,492 including the use of proprietary interfaces.

(656)    Contrary to the Notifying Party's assertion that there are no "unique advantages" to purchase a combination of subsystems from the same supplier, the market investigation shows otherwise.493 The interfacing of subsystems so that they work seamlessly as a whole is essential, and to achieve such interoperability customers feel a very clear advantage of procuring certain subsystems, in particular wayside ATP and interlockings together.494 As explained by [...], it "must resort to bundling of some subsystems", in particular ETCS wayside ATP and interlockings, for the purposes of mitigating "risks and responsibility"; doing otherwise would leave [...] responsible for ensuring that the interlocking functions properly with the ETCS wayside system and thus exposing the company to additional risk. [...] concludes that tendering out subsystems separately would only become an option with "comprehensive standardisation" of the "building blocks" between the subsystems, which presently is lacking.495

(657)    Similarly, […] indicates that separate tenders for interlockings and ATP wayside are "practically impossible", as there is "an almost unbreakable link between core signalling subsystem interlocking (IXL) and ATP". […] also confirms, similarly to [...], that bundling allows reducing the "interface risk" between interlockings and ATP, as "suppliers are best placed to manage this risk between their own subsystems".496 […] indicates that "[t]endering subsystems separately as long as standard interfaces are not available […] would cause huge expenses in developing ad hoc integration among different suppliers and high risk for the Project time line".497

(658)    Contrary to what the Parties seem to suggest in their response to the Statement of Objections,498 there is no contradiction in customers identifying advantages in purchasing a combination of subsystems (for instance ATP and interlockings) from a single supplier (see recitals (656) and (657)) to limit, for instance interface risk  where possible, but also continuing to procure subsystems separately. These purchasing patterns support the notion that there is a distinct demand for both.

(659)    From a supply-side perspective, the results of the market investigation confirm that certain mainline signalling suppliers, Siemens, Alstom, Bombardier, Ansaldo STS and Thales all offer the various mainline signalling subsystems and are thus able, at least in principle, to offer full mainline signalling projects or any combination of subsystems included in a tendered project. Other smaller suppliers only provide specific mainline signalling subsystems. This is for example the case of Resonate in the UK that provides traffic management systems (or OCSs). These specialised suppliers are often national players only active in one Member State and due to historical reasons focus on solutions meeting specific requirements in a given country.499  As  such,  they are not  representative  of  the  EEA  market  for  mainlin signalling projects that is largely concentrated in the hands of five players, each of them able to supply complete mainline signalling projects, including all subsystems and combinations of subsystems.

(C.i)       ATP

a)    ATP wayside and on-board systems

(660)    The Commission considers that ATP projects should be sub-segmented between  ATP wayside and on-board unit (OBU) projects, each constituting a separate product market.

(661)    With regard to ATP, the market investigation confirms that wayside ATP and on- board equipment should be treated separately. The two are not substitutable neither from the demand or supply side; they have different functionality, are purchased by different customers, and can be supplied by different suppliers on a given network.

(662)    OBUs and wayside ATP perform different functions. While wayside ATP receives information from the interlocking and communicates this information to the passing trains, the OBU receives this information and transmits it to the train driver.

(663)    OBUs and wayside ATP are generally procured separately from one another by different customers.

(664)    Market participants indicate that OBUs are purchased separately from other mainline signalling subsystems.500 […] indicates that "OBUs are always procured separately",501 [...] explains that "OBUs are purchased jointly with  [rolling stock]"502, while [...]indicates that "[on board] ATP systems usually are tendered in a different project".503 This is also confirmed by the bidding data submitted by the Parties.504

(665)    Moreover, the customers for the two ATP elements are different. OBUs are usually purchased by the rolling stock manufacturers or the train operating company (depending on whether the OBU is intended for installation on new rolling stock or installation on existing rolling stock); whereas ATP wayside systems are procured by infrastructure managers.505

b)           Legacy and ETCS systems

(666)    The Commission considers that ATP wayside and OBU projects should be  segmented into legacy and ETCS projects, each constituting a separate product market.

(667)    The results of the market investigation also confirm that ATP systems, both wayside ATP and OBUs, should be further segmented between conventional/legacy   systems

nd ETCS systems.506 […]explains that legacy ATP wayside and legacy OBUs "cannot fulfil functionalities required by the ETCS systems".507 [...] explains that both ATP wayside and OBUs "should be divided into (i) conventional or legacy solutions, which are not interoperable; and (ii) ECTS solutions (ERTMS level 1 and level 2), which requires interoperability and conformity with European standard rules".508  [...] indicates that the two should be distinguished because of "[d]ifferent requirements and competition".509

(668)    With regard to ATP wayside systems, market participants argue for the segmentation between legacy and ETCS in particular on the basis of the following factors: (i) legacy ATP wayside systems cannot fulfil the functionalities required by ETCS ATP wayside systems; (ii) legacy solutions are built on proprietary technology, which implies a strong dependency from the supplier and leads to negotiated tenders with the supplier of the legacy system, whereas ETCS solutions are more standardised and as such allow for more open tenders (while still featuring a certain advantage of the supplier of the legacy solutions, with the exception of the signalling of new lines, which is, however, rather rare); (iii) approval procedures for legacy and ETCS systems are different: while ETCS requires a notified body ("NoBo") responsible for the certification of ERTMS equipment and being a new technology, is subject to a much more sophisticated testing process, legacy systems are approved in a national process and usually do not include an approval process for individual projects.510

(669)    With regard to OBUs, a majority of market investigation respondents also consider that OBUs should be further segmented between legacy and ETCS for the same reasons as for ATP wayside systems.511

c)          Re-signalling and overlay projects – ATP wayside

(670)    The Commission considers that ATP projects should be segmented between overlay and re-signalling projects, each constituting a separate product market.

(671)    The market investigation confirms that ATP wayside systems can be procured separately as a standalone subsystem placed over an existing interlocking infrastructure ("overlay project"), but is often procured together with interlockings as part of bundled project, or "re-signalling" project.

(672)    In the Form CO, the Notifying Party has recognised differences between re- signalling and overlay projects, the existence of a specific customer demand for re- signalling projects, and has argued that ETCS ATP systems and interlockings form an "inseparable bundle" when tendered together by a customer. It claims, however, that  identifying  separate  markets  for  re-signalling  and  overlay  projects  is      not appropriate as clear-cut lines between the two cannot be drawn (see recitals (639)- (641)).

(673)    In their response to the Statement of Objections, the Parties contest the  Commission’s conclusion that overlay and re-signalling projects constitute separate product markets. The Parties repeat the arguments presented in the Form CO and their response to the Article 6(1)(c) Decision, and indicate that identifying separate markets for overlay and re-signalling projects is unsubstantiated on the basis of the evidence in the case file and does not reflect the nature of competition. They argue that neither demand side nor supply side factors support such a finding.512

(674)    Respondents to the market investigation give mixed responses as to whether a segmentation of the market between re-signalling and overlay projects is warranted.513

(675)    Some market participants consider that a segmentation should not apply because the signalling solutions for re-signalling or overlay projects do not differ much, the main components of the system remain the same and the suppliers able to provide re- signalling projects can also offer overlay projects.514 On the other hand, some market participants consider that there are differences between re-signalling or overlay projects as far as their complexity is concerned. Overlay projects are more complex because the new signalling solution needs to interface with the existing signalling system thus conferring an incumbency advantage to the supplier with the installed base.515 A re-signalling project is considered to be technically simpler as it includes products from the same supplier avoiding complex external interfaces, whereas an overlay project requires external interfaces which could be challenging depending on the age and type of the existing signalling solution. The high-level solution in ATP wayside projects could be the same in both overlay and re-signalling projects, but the detailed solution will require different products and extra modules for external interfaces in overlay projects. Thus, the main difference between overlay and re- signalling projects lies in the development of the interface to ensure compatibility of the system, in particular of the ATP wayside with the existing interlockings.516

(676)    In seeking to justify a single product market comprising both overlay and re- signalling projects, the Parties argues in their response to the Statement of Objections that competitive conditions are similar for re-signalling and overlay projects with the same set of players bidding for and winning both re-signalling and overlay projects.517

(677)    It is accurate that the largest mainline signalling suppliers in the Europe, including the Parties, Thales, Ansaldo and Bombardier are actively pursuing both types of projects. Their capacity to do so does not disprove, however, the differences between the two types of projects, in particular in terms of technical requirements for interfaces and overall technical complexity, or the specific customer demand for  one or the other type of project, not least in view of the interface risk that procuring interlockings and ETCS ATP wayside separately entails for the customer.

d)        OBUs for new rolling stock and OBUs for retrofitting existing rolling stock (678)     The  Commission  does  not  consider  that  a  segmentation  of  OBUs  into  separate

product markets based on installation, i.e. new rolling stock or retrofitting existing rolling stock, is warranted.

(679)    The majority of customers consider that OBU projects should not be further segmented between (i) retrofitting rolling stock (i.e. replacing the OBU on an existing train) and (ii) installing OBU for new rolling stock, on the basis that both types of project cover the same solutions. However, several customers outline that retrofitting projects are more complex and many customers explain that if the OBU is the same for both old and new rolling stock, the integration work is different between retrofitting old rolling stock and installing OBUs on new rolling stock.518 Further, access to the engineering details of the rolling stock can be an important determinant in the retrofitting process.

(680)    Among competitors, respondents concur with the responses by customers, and indicate that technically the OBUs are the same whether intended for installation on new rolling stock or for installation on old rolling stock. It is explained that the same suppliers provide OBUs for both new and retrofitted rolling stock.519 For example  [...] explains that "[t]here are no differences in technology for OBUs for new rolling stock and OBUs for retrofitting, so suppliers of OBUs for new rolling stock can also provide OBUs for retrofitting", however there are practical hurdles linked to accessing legacy OBU technology that suppliers wishing to retrofit old rolling stock may encounter. This is the case when the supplier of the new OBU is different from supplier of the legacy OBU or is different from the supplier of the rolling stock on which to retrofit the new OBU.520 [...] similarly points out that "if the supplier does not own the Legacy / STM technology or cannot acquire it, the supplier will only be able to offer an overlay solution".521

(681)    These submissions by [...] and [...] confirm the Commission's assessment that a distinction between OBUs for new rolling stock and OBUs for retrofitting is not warranted, but that a distinction should be made between ETCS and legacy technologies (see recitals (666) to (669)).

(682)    […] explains that all suppliers can provide ETCS OBUs for new vehicles and for retrofitting old vehicles, but not all suppliers can supply legacy OBUs. This response highlights again the distinction between legacy and ETCS systems. Similarly to customers and [...] and [...], also […] refers to the complexity linked to retrofitting  old vehicles, namely the interfacing challenge between ETCS and legacy systems. […] submits that an OBU supplier that did not provide the legacy OBU or the rolling stock on which to retrofit the new OBU will need some "goodwill" from the legacy suppliers to gain the required access to the know-how held by the vehicle supplier and the legacy OBU supplier.522

e)          Segmentation by ETCS level

(683)    The Commission considers that there is no need to define separate product markets for ETCS wayside ATP and ETCS OBU projects based on ETCS level (namely ETCS Level 1, ETCS Level 2).

(684)    On the demand side, a majority of customer respondents to the Commission's market investigation do not support the notion that competitive conditions, for example the number of competitors, strength of competitive constraints, different emphasis of parameters such as price, delivery time, safety performance, etc., would significantly differ for ETCS Level 1 and ETCS Level 2 systems.523 Those responding that conditions are different, indicate that the number of competitors differs between Level 1 and Level 2, with the number of ETCS Level 2 suppliers being larger than the number of Level 1 suppliers.524

(685)    Among competitors, views are mixed. […]explains that it does not support such a product market segmentation as "all of the major suppliers can supply ETCS Level 1, 2 and 3 in the future", but recognises that customers request specifically one or the other ETCS level and, from a supply side, moving from ETCS Level 1 to ETCS Level 2 (and in the future ETCS Level 3) is a costly and time consuming exercise.525 [...] explains that the set of suppliers is different between ETCS Level 1 and ETCS Level 2, that suppliers, such as […], do not all have all wayside elements in their product offering, and that different customers purchase different levels of ETCS solutions.526 [...] highlights the differences between ETCS Level 1, 2 and 3 systems, and indicates that customers purchase different level ETCS mainline signalling solutions depending on their need, available funding, the state of their conventional technology, and available time to deploy ETCS.527 [...] considers that ETCS Level 1 and ETCS Level 2 can be considered two separate product markets in view of the different technologies they represent, and explains that customers demand specific ETCS level solutions in their tenders, and competitors are different for both levels, with the "main signalling suppliers", i.e. the Parties, Ansaldo, Bombardier and Thales providing both Level 1 and Level 2 solutions, but smaller competitors, for example Mermec, CAF, AZD only offering Level 1 as they lack the RBC technology needed for Level 2.528

(686)    The Commission considers that on the customer side there appears to be a distinct demand for either ETCS Level 1 or ETCS Level 2 solutions with limited demand- side substitutability. On the supply side, however, all the main mainline signalling suppliers are active in both Level 1 and Level 2 systems. It is recognised that smaller players may only be active in one or the other ETCS level, or have incomplete product portfolios of one or the other ETCS level solution. To the extent that is the case, it may indeed affect these players' ability to compete with the main mainline signalling players for specific contracts and meet specific customer requirements. Such differences between competitors will, however, be discussed as part of the competitive assessment.

f)           Segmentation by project size

(687)    The Commission considers that there is no need to define separate product markets for ATP wayside overlay and re-signalling by project size.

(688)    The results of market investigation were mixed as to whether projects should be sub- segmented on the basis of size. There is also no clear threshold discernible for the separation of small(er) and large(r) projects.

(689)    On the one hand, the majority of customers indicate that they do not consider that mainline signalling projects should be sub-segmented on the basis of the size of the project.529 On the other hand, some of these customers indicate that competition conditions differ significantly for different size projects.530 They explain that  mainline signalling suppliers are not interested in participating in small tenders, because of the costs to participate to such public procurements. Due to the high development costs, companies are more interested in large contracts that will enable them to recoup the investments made. Customers therefore try to tender large mainline signalling projects, instead of tendering projects out in smaller segments, in order to attract as many competitors as possible.531

(690)    The majority of competitors consider that mainline signalling projects should be further segmented according to the size of the project, on the basis that large projects are typically more complex, usually require specific commercial references making it more difficult for certain suppliers to become credible bidders and necessitate higher investments and costs. As a result, the set of competitors participating in tenders for mainline signalling projects differ depending on the size of the project and competitive conditions significantly differ according to the size of the projects.532 Several competitors indicate a dividing line between small and large projects varying between EUR 15 million and EUR 25 million; while others seem to consider that another category should include medium size projects.533 Finally several competitors indicate that smaller competitors ECM, Mipro, Mermec, AZD or Sirti do not participate in tenders for large projects.534

(691)    The Commission recognises that smaller players, with limited financial capabilities or more limited technical or project management capabilities, may focus their activities on projects of more limited size and they may not be equally well positioned as the main signalling suppliers to compete for the larger tenders. Such differences between competitors will, however, be discussed as part of the competitive assessment.

(C.ii)      Interlockings

(692)    The Commission considers that standalone interlocking projects constitute a separate product market, distinct from re-signalling projects involving the supply of both ETCS ATP wayside systems and interlockings.

(693)    As the Notifying Party has argued in the Form CO (and despite questioning the merit of defining a separate bundle market for re-signalling projects) to the extent that ETCS ATP systems and interlockings are tendered together in re-signalling  projects, they form an "inseparable bundle" and standalone interlockings projects should be considered separately from such re-signalling projects.535

(694)    There exists, in fact, a distinct demand for standalone interlocking projects. The tender data submitted by the Parties indicates that in the period 2008-2018, more  than 300 contestable standalone interlocking projects were tendered in 20 different EEA countries.536

(695)    The Commission considers that there is no need to define separate product markets for standalone interlockings projects based the type of technology used.

(696)    The Commission has not received indications that the market for standalone interlockings projects should be further segmented between non-electronic technology and computer-based technology. The Commission notes, however, that non-electronic interlockings are becoming an outdated technology.

(697)    The Commission also considers that there is no need to define separate product markets for standalone interlockings based on project size, in line with the arguments presented in recitals (687)-(691).

(C.iv)     Segmentation between greenfield and brownfield projects

(698)    The market investigation shows that a several competitors consider that brownfield and greenfield projects should be distinguished. While the same signalling solution can be used for both brownfield and greenfield projects there is a difference in the integration work specific to brownfield projects.537 Greenfield and brownfield projects should be distinguished, notably on the basis that (i) brownfield projects are more complex and customers are generally concerned by issues such as integration with legacy systems and migration of systems without causing disruption to train services; and (ii) from a demand side perspective, greenfield projects are more driven by price than brownfield projects: the prices of mainline systems are quite standard for greenfield projects whereas prices for brownfield projects can be strongly impacted by the complexity of the line and the number of existing systems.538 Competitors consider that while in theory the main suppliers are able to provide both brownfield and greenfield projects, the complexity linked to the need for interfaces in brownfield, and in particular, overlay projects may make non-incumbents uncompetitive or smaller suppliers less capable of delivering on such complex projects.539

(699)    On the customer side, a majority of respondents consider that mainline signalling projects should be segmented between greenfield and brownfield projects mostly because requirements for the implementation of these projects are different, even though the signalling solution could be the same in both types of projects.540

(700)    The Commission considers that the responses from market participants  on brownfield  and  greenfield projects  essentially relate to  what has been  defined    as overlay and re-signalling projects, which have been discussed in recitals (670)-(675). Pure greenfield projects (distinct from re-signalling projects) are rare in the EEA, and the Commission considers that respondents' feedback on the specificities of brownfield projects (including on interfacing and integration with legacy systems)  are essentially about the projects defined as "overlay".

(701)    The Commission therefore considers that there is no need to define a  separate product market for greenfield and brownfield projects.

6.2.1.4.     Conclusions on product market definitions in mainline signalling

(702)    For the purpose of the assessment of the Transaction, the Commission's view is that mainline signalling and urban signalling are separate markets. Within mainline signalling, signalling projects and products541 constitute separate  markets.  In addition, mainline signalling projects should be further segmented, with the following separate relevant product markets defined:

–               Legacy OBU projects;

–               ETCS OBU projects;

–               Legacy ATP wayside projects;

–               Standalone ETCS ATP wayside (so-called overlay) projects;

–               Standalone interlocking projects;

–               ETCS ATP wayside re-signalling projects (bundle of ETCS ATP wayside and interlockings).

6.2.2.           Geographic market definition

6.2.2.1.     Introduction and framework for reference

(703)    The Commission Notice on the definition of the relevant market542 highlights that the Commission "will take a preliminary view of the scope of the geographic market on the basis of broad indications as to the distribution of market shares between the parties and their competitors, as well as a preliminary analysis of pricing and price differences at national and Community or EEA level".543 The Commission will also need to explore "the reasons behind any particular configuration of prices and market shares […]".544 For example, "companies might enjoy high market shares in their domestic markets just because of the weight of the past, and conversely, a homogeneous presence of companies throughout the EEA might be consistent with national or regional geographic markets".545

(704)    The Notice goes on to identify a number of factors such as the "importance of national or local preferences, current patterns of purchases of customers, product differentiation/brands, other) in order to establish whether companies in different areas do indeed constitute a real alternative source of supply for consumers" and "the question to answer is again whether the customers of the parties would switch their orders to companies located elsewhere in the short term and at a negligible cost".546 The Notice also states that "the Commission will identify possible obstacles and barriers isolating companies located in a given area from the competitive pressure of companies located outside the area, so as to determine the precise  degree of market interpenetration at national, European or global level".547

6.2.2.2.     Mainline signalling projects

(A)                                    The Notifying Party's views

(705)    The Notifying Party submits that the geographic markets for the mainline subsystem projects assessed in this decision are as follows:

(1)                      EEA-wide for ETCS OBUs;

(2)                      national for legacy wayside system and legacy OBUs projects;

(3)                      national for standalone interlocking projects; and

(4)                      national for ETCS wayside projects.

(706)    As regards ETCS OBUs, the Notifying Party submits that the relevant geographic market is EEA-wide because the ETCS system is designed to specify a standard interface between OBUs and balises so that a single OBU can operate with ETCS balises in any country. The Notifying Party further explains that in practice, however, when delivering an ETCS OBU, the supplier will typically need to integrate the ETCS OBU with one or more national OBUs that are either already installed or that must be installed alongside the ETCS OBU. The Notifying Party submits that nevertheless those integration requirements are typically no barrier to suppliers delivering ETCS OBUs to customers in new countries.548

(707)    The Notifying Party also submits that the geographic market for legacy wayside system and legacy OBUs is national in scope because (i) they are purchased only by infrastructure managers and other national customers within a relevant country (with the exception of legacy OBUs for cross-border trains), (ii) they are supplied by different suppliers, and (iii) typically rely on proprietary technologies. Legacy OBUs, the Notifying Party explains, must conform to national specifications even though they are purchased by customers both within and outside a given Member State (for use in cross-border trains).

(708)    The Notifying Party further submits that the geographic market for interlockings is national in scope because (i) interlockings must be adapted to conform to national systems and signalling rules vary to some degree between countries, (ii) national authorisation processes, and (iii) interlockings need to interface with existing interlockings on adjacent or intersecting parts of the track, although these integration requirements, the Notifying Party submits, do not normally present a major hurdle.549

(709)    As regards ETCS ATP wayside projects, the Notifying Party submits that the relevant geographic market is national because even though the market for ETCS wayside systems is, relative to legacy systems, more open to non-incumbent suppliers, non-incumbent suppliers still have to obtain national authorisation and customise their products to certain remaining national specifications of ETCS.550  The Notifying Party explains that in the case of an overlay project (which requires the development of an interface between the ETCS system and the installed interlockings if from a different supplier), the supplier of the ETCS system needs to create an interface to the installed interlockings and homologate the ETCS system. On the  other hand, in the case of a re-signalling project, the supplier has to homologate and customise their interlocking to comply with the applicable national standards which vary significantly between countries.551

(710)    More generally, the Notifying Party acknowledges that there is a trend towards European standardisation of ATP systems through the deployment of ETCS systems which can (i) support interoperability between different rail networks (ii) support interoperability between the equipment of different suppliers, and (iii) provide a common safety platform for taking steps towards further benefits (e.g., autonomous driving systems). At the same time, the Notifying Party recognises a number of characteristics associated with ETCS deployment that support a narrower than EEA- wide geographic market definition, namely: (i) certain national operators continue to require national adaptations of the ETCS systems to accommodate national specifications,552 (ii) in the case of overlay projects where the infrastructure manager chooses to keep the existing interlockings, the ETCS supplier must develop a (national specific) interface between the existing interlockings and the ETCS system,553 and (iii) the ETCS deployment is still in the early stages with only a very small proportion of the total EU rail network complete and no deadline for the completion of the entire project.554

(711)    In their response to the Article 6(1)(c) Decision, the Parties submit that based on the available evidence an EEA-wide market for ETCS ATP wayside and interlockings can be excluded because:555

(1)                       there is a significant variation in the set of competitors active in, and their relative strength across, EEA-countries, in ETCS ATP wayside, and interlockings (where a substantial proportion of interlocking suppliers are active in only two or fewer countries);

(2)                       customers cannot switch to suppliers active in other Member States in a sufficiently short timeframe and at sufficiently negligible cost to justify identifying an EEA-wide market (they cannot directly deploy in their network  a signalling solution used in another country), due to technical requirements and regulatory barriers, such as homologation, specific to each country (unlike in urban signalling, where all adaptation and authorisation processes are always project specific and not country-specific);

(3)                       suppliers cannot move from one Member State into another sufficiently easily to justify an EEA-wide market, given the time-consuming and costly technical adaptation and regulatory requirements at national level (also illustrated by the majority of signalling projects won by suppliers already active in the relevant country (bids from suppliers established in other countries reflect potential entry, not an EEA-wide market);(4)                       feedback gathered during the market investigation confirms the national scope of mainline signalling markets; and

(5)                       any hypothetical bundled market including both ETCS ATP wayside projects would also be national.

(712)    In relation to recital (711)(3), the Parties provide specific arguments for each mainline signalling subsystem. For ETCS ATP, despite standardisation, ETCS ATP wayside systems require substantial national adaptations, as it remains subject to National Technical Rules ("NTR"), which require multi-million R&D investments in each country. The interaction of ETCS and legacy national signalling system also requires specific implementation in different countries. ETCS ATP systems need to be certified at EU level (for TSI harmonised requirement) and at the national level, once for each national market. As regards interlockings, national adaptation and authorisation requirements are even more cumbersome than for ETCS ATP wayside (average timeline of […] months and costs between […] and […]).556

(713)    In their response to the Statement of Objections, the Parties reiterate the arguments set out in the Form CO and their response to the Article 6(1)(c) Decision. They also submits that:

(1)   the Statement of Objections incorrectly treats ERTMS (which applies to differing extents to OBUs and ETCS wayside) and EULYNX (which applies to interlockings) as if they impact a similar portion of the specifications for each subsystem. The Parties submit that while nearly all the specifications in an ETCS OBU are defined by the EEA ERTMS standard, the situation is different for ETCS ATP systems, which include a portion of specifications defined by the ERTMS standard, but also a substantial portion of specifications defined at national level (national technical requirements), especially in France and Italy. The Parties submit further that this difference is even more marked for interlockings, where instead of defining technical specifications as ERTMS does for OBUs and ATP systems, EULYNX only defines interfaces between the interlocking and other parts of the signalling system. Furthermore, the Notifying points out that EULYNX is not yet operational and no EULYNX interlockings are in operation;557

(2)   the Statement of Objections fails to undertake a comparative assessment of adaptation costs as a portion of project value across different mainline signalling sub-systems; while adaptations costs for ETCS OBUs are low compared to the project size, this is not the case for ETCS ATP and interlocking systems;558

(714)    According to the Parties, the relevant market for interlockings is unambiguously national because (i) the requirements are fully national (no EEA-wide authorisation and adaptation costs),559 (ii) the example of adaptations costs provided in the Statement of Objections are not representative or reflect a proper assessment,560 (iii) the Statement of Objections ignores evidence on the file suggesting that adaptations costs are high561  and, (iv) the Statement of Objections wrongly concludes that the same interlocking platforms are used across countries, while Alstom has six different interlocking applications across the EEA.562 In addition, the Parties argue that the bidding analysis has material flaws in relation to the number of non-incumbent suppliers bidding and winning interlocking projects in the EEA,563 and that the Statement of Objections overstates the extent to which homologation occurs post- tender. 564

(715)    In relation to the market for ETCS ATP wayside overlay projects, the Parties submit in their response to the Statement of Objections that its scope is national, because (i) the Statement of Objections overstates EEA aspects of ETCS ATP wayside adaptation and ignores national adaptation requirements, as EEA-wide requirements cover fewer specifications for wayside systems than for OBUs,565 (ii) the examples cited for adaptation costs do not support that they are low relative to project  value,566

(iii) the Parties use more than one ETCS ATP wayside application across the EEA (Siemens has two) and substantial country adaptation is required,567 (iv) the bidding analysis does not support the Commission’s claims,568 (v) it draws the wrong conclusions from competitors’ participation in tenders in a number of countries,569 and (vi) it derives the wrong conclusions from the Parties’ internal documents.570

(716)    As regards ETCS ATP wayside re-signalling projects, the Parties submit in their response to the Statement of Objections that its scope is national for the same reasons argued for ETCS ATP wayside overlay projects.571

(B)                                     The Commission's decisional practice

(717)    In previous cases the Commission did not considered the geographic scope of the mainline signalling market, but rather a unified signalling market, which included both urban and mainline signalling projects.

(718)    In case M.4337 – Thales/Alcatel Divisions Transport et Systèmes, the Commission considered the geographic scope of a product market that comprised both mainline and urban signalling. The Commission noted that the market investigation suggested that the geographic scope of this unified market for urban and mainline signalling projects was at least EEA-wide but ultimately left the precise geographic market definition open.

(719)    In case M.4508 – Alstom UK/Balfour Beatty/JV, the Commission considered the geographic scope of a unified market for urban and mainline rail signalling projects. In that case, the parties argued that the relevant geographic market was national because, in particular in the UK, standards are set by the national safety and  standards authority. The Commission noted that, on the other hand, the market investigation in a previous case (Thales/Alcatel) suggested the relevant geographic scope was European-wide and ultimately left the precise geographic market definition open.

(720)    In case M.6843 – Siemens/Invensys Rail, the Commission considered the geographic scope of a united product market comprising urban and mainline signalling projects. The Commission noted that during the market investigation some participants considered that railway signalling projects are comparable in the EEA or even worldwide due to similar technologies, comparable safety requirements, progressing standardisation and exchange of information between customers. Other respondents however indicated that customer preferences, national technical specifications, national safety standards and national authorisation processes were often mentioned in the market investigation as barriers to entry. The precise geographic market definition was ultimately left open.

(C)    Results of the market investigation and the Commission's assessment (C.i)              ETCS OBUs

(721)    The Commission considers that the relevant geographic market for ETCS OBU projects is EEA-wide in scope for reasons set out below.

(722)    First, although ETCS OBU projects still need to undergo national authorisation procedures, ETCS has several standardised elements that are reflected in the TSI compliance requirements. The Notifying Party notes that ETCS ATP wayside and on-board systems are subject to a European TSI, which limits the extent of differences between suppliers' offering. One of the reasons for that is that that the interface between ETCS OBUs and ETCS ATP systems is standard, as are most of the requirements for ETCS OBU and, therefore, as the Form CO points out "As a result, the large majority of the authorisation process for ETCS OBUs takes place at EU level, and the national certification and authorisation process is more limited  and relatively fast, in particular compared to other signalling systems".572 In that respect, [...] submits that it "approximates that, on average across the EEA, 15-20% of requirements (including NTRs) are not caused by TSI".573 […]notes that "ETCS OBU is standardized by the TSI to an extent of 90% and the remaining 10% is nationally / rolling stock dependent".574 Therefore, the large majority of the resources allocated by ETCS OBU suppliers are to meet requirements at the EEA-level, for a given product/solution.

(723) The Commission however notes that ETCS OBUs still need to interface with legacy signalling systems and, although most of the authorisation process takes places at the EU level, there is still a national process as well. Regarding the compatibility of ETCS wayside and ETCS OBUs, [...] submits that "The interoperability  requirements for ETCS ATP and ETCS OBUSs are fully standardized by the ETCS specifications. However, because testing and homologation is still necessary due    to national operational and engineering rules, ERA and UNISIG have worked out the concept of a “Compatibility test” called ESC (ERTMS System Compatibility) to be included in the 4th Railway Package update CCS TSI in mid 2019. This process will be a step forward in making interoperability processes and homologation more affordable for ETCS OBU providers".575 The Notifying Party does not submit  that  the requirement for ETCS OBUs to interface with legacy signalling systems constitutes such a barrier to give rise to national markets nor a reason that the  relevant scope of the geographic market for ETCS OBUs should be considered national.

(724)    The market investigation supports the view that the adoption of EU-wide authorisation procedures and standards, and in particular of ERTMS, is developing homogeneous conditions for competition between mainline signalling suppliers within the EEA.576 While there is a need for ETCS OBUs to operate with legacy signalling systems, which to some extent confers a competitive advantage to those suppliers having access to those systems, the Commission considers, in accordance with the Notifying Party's view of the relevant scope of the market, considers that  this advantage is surmountable so as to not present a national barrier to suppliers participating in ETCS OBU projects in different countries.

(725)    Second, adaptation costs for ETCS OBU suppliers not present in a specific country (without access to the legacy signalling system) are low, relative to the size (value)  of ETCS OBU projects. For example, […].577 [...] submits that adaptation costs amounted to EUR […] for a EUR […] project in Belgium and to EUR […] for the a EUR […] project in Denmark.578 While the majority of ETCS OBU projects are smaller than these examples ([…], as identified by the Parties and submitted to the Commission in the so-called Consolidated Project List ("CPL")), the Commission considers, based on the Form CO and the Parties' internal documents, that these costs may be amortised over several projects in the same country if an ETCS  OBU supplier is awarded the first project and that suppliers would therefore have an incentive to participate in the first ETCS OBU tender.

(726)    Moreover, the results of the market investigation clearly show that ETCS OBUs entail much fewer differences (in terms of customer preferences, technical specifications and regulatory requirements) across EEA countries than conventional OBUs. As a result, the cost of adapting ETCS OBUs between EEA countries is lower and the degree of supply-side substitutability broader for ETCS OBUs than for conventional OBUs.579

(727)    In terms of demand-side substitutability, when asked whether there are significant differences in terms of customer preferences, technical specifications and regulatory requirements across the EEA, such that a signalling solution for ETCS OBUs deployed in one EEA Member State cannot be used in another EEA Member States, the  majority  of  respondents  responded  'No'.580   Finally,  the  market   investigatio supports the view that the adoption of EU-wide authorisation procedures and standards, and in particular of ERTMS, is developing homogeneous conditions for competition between mainline signalling suppliers within the EEA.581

(728)    Third, from a supply-side substitutability point of view, the same baseline ETCS OBU platforms developed by the respective suppliers are used in each Member State after adaptation (Alstom: Atlas Trainborne; Siemens: Trainguard OBUs; CAF: Auriga OBU; Bombardier: EBI CAB OB, Thales: AlTrac ETCS OBU). In theory, a competitor with a presence in at least one Member State and a track record in the EEA should be able to enter a new Member State subject to being able to overcome the requirement to adapt its product to national specifications and customer preferences. The Commission considers that the use of standard platform/products in tenders across different EEA countries provides an indication that competitive conditions are similar across the EEA.

(729)    Fourth, the evidence available to the Commission shows, based on the EEA countries where the Parties have submitted bidding data, that suppliers previously not present  in a given country (through a legacy signalling system), and therefore having a competitive advantage, are frequently bidding and winning in that country. The Commission defines an incumbent supplier for the market of ETCS OBUs as a supplier already providing the legacy OBUs in a given country. In line with the Notifying Party's observation that no legacy signalling system remains in place in Luxembourg,582 the Commission has removed Luxembourg from the list of countries where entrants’ bids and wins are assessed, as no incumbency advantage would  apply at least with regard to an existing legacy signalling system (as there would be no legacy signalling system to connect to).

(730)    The Notifying Party has argued in its reply to the Letter of Facts that the Commission’s definition of incumbency for ETCS OBUs is inconsistent and does not align with the operation of incumbency in the market as it would lead to suppliers that previously had won ETCS OBU projects in a country not being recognised as incumbents in the Commission’s analysis. According to the Notifying Party the Commission’s definition of incumbency is overly broad as it could lead to the same supplier entering the same market multiple times. The Notifying Party also submits that prior homologation of a legacy OBU does not remove the need for a supplier to subsequently homologate also its ETCS OBU. The Notifying Party further submits that for some ETCS OBU projects there is no requirement for legacy OBUs, thus making the legacy technology entirely irrelevant for such projects.583

(731)    The Commission considers that its definition of incumbency is appropriate, in particular as being a supplier of legacy OBUs confers an advantage to a supplier of ETCS OBUs as it allows that supplier to interconnect its ETCS OBU to the legacy signalling system in a given country, which is the usual situation, be it through the  use of a legacy OBU or by means of an interface. That supplier also has an  advantage, compared to the non-legacy OBU supplier, in homologating its ETCS OBU solution.

(732)    As regards the revised Table provided by the Parties' in their response to the Letter of Facts,584 the minor variations suggested therein would not alter the Commission’s conclusion.

(733)    In relation to the Parties' argument in relation to the inclusion of non-contestable projects for the purposes of geographic market definition,585 the Commission notes that only contestable projects have been considered as, by their nature, entry cannot occur in non-contestable projects, awarded to suppliers already present in that country.

(734)    Table 24 shows that in the 2008-2018 period, non-incumbent suppliers submitted bids in […] out of […] countries and won tenders in […] out of […] countries. Only countries where contestable ETCS OBU tenders were organised during that period have been included.

Table 24: Non-incumbent bids and wins in ETCS OBUs, 2008-2018

Source: CPL and Form CO, incumbent list as submitted by the Notifying Party (response to the Statement of Objections, Chapter C.1, Table 25).

Note: the Commission has accepted the Parties' amendments in their response to the Letter of Facts, except for changes resulting from non-contestable projects or in contradiction with the list of incumbents provided in Table 25 of Chapter C.1 of their response to the Statement of Objections

(735)    Fifth, the CPL shows that the participation in ETCS OBU tenders across the EEA is limited to the same set of competitors, who typically bid in many EEA countries. The presence of regional or national competitors is very limited, as shows Table 53. The number of countries where suppliers have bid is: Siemens ([…]), Alstom ([…]), Bombardier ([…]), Thales ([…]), Ansaldo ([…]) and CAF ([…]). This shows that the Parties, and to a lesser extent Bombardier, Thales and Ansaldo are consistently present in tenders across the EEA. With the exception of CAF (present in […] countries) and Mermec (only in Poland, but with sales also in Italy), no other players are active in ETCS OBU tenders in the EEA.

(736)    Sixth, the fact that market shares greatly fluctuate across countries does not affect these conclusions, as this can be due to historical reasons and the lumpiness of  market shares in ETCS OBUs.

(737)    The results of the market investigation confirm the Notifying Party's view and point towards an EEA-wide market for the supply of ETCS OBUs. When asked specifically about ETCS OBUs, more than half of the respondent suppliers consider that the relevant geographic market should be at least EEA-wide.586 Similarly, a large majority of infrastructure managers indicate that the market for ETCS OBUs should be considered as at least EEA-wide in scope and an overwhelming majority of OBU customers consider the geographic scope of the market to be at least EEA-wide.587

(738)    As a result, all major ETCS OBU suppliers are able to exercise a bidding constraint on each other across the EEA, even though they do not necessarily bid in all tenders in all EEA countries.

(739)    The Commission also notes one of the arguments of the Notifying Party supporting an EEA-wide geographic market in urban signalling. The Notifying Party submits that customers purchase from suppliers from across the EEA and that "the fact that certain suppliers did not bid in tenders during a given period in a particular country should not be taken as evidence that those suppliers could not have bid in that tender or could not bid in future tenders in a particular country".588 The Commission considers that a similar situation applies in mainline signalling which could speak in favour of an EEA-wide market.

(740)    For the reasons set out in Section 6.2.2 the Commission considers that the relevant geographic market for ETCS OBU projects is EEA-wide.

(C.ii)      Legacy OBU projects

(741)    The results of the market investigation confirm the Notifying Party's view that the relevant geographic market for legacy OBUs systems is national in scope.

(742)    Around three quarters of respondent suppliers consider that the relevant geographic market for legacy OBUs is national in scope.589

(743)    The Commission therefore considers that the relevant geographic market for legacy OBU projects is national.

(C.iii)     Interlockings

(744)    In its assessment of the geographic of the market for standalone interlocking projects, the Commission has considered the following factors.

(745)    First, the Commission has considered the adaptation costs incurred by standalone interlocking suppliers not present in a specific country relative to the project size. Alstom submits that an investment of EUR […] was necessary for adapting its […] platform to obtain homologation in France (a new interlocking platform in a country where it is already present). The first orders that Alstom expects to obtain for this platform are worth EUR […].590 Siemens submits that its adaptation costs for  entering the interlockings market in Poland would be EUR […] (the size of the market for standalone interlockings in Poland amounted to EUR […] in 2008/2018).591 […] project in the UK, which included interlockings (and the required homologation) had a value of EUR […], for a much larger standalone interlockings market.592 […] reports adaptation costs of EUR […] for product homologation and adaptation to national rules in an interlocking project in Slovenia.593 […]reports EUR […] in country- and project-specific adaptation costs for the framework agreement for interlockings in Norway (worth EUR […]) and, in general, EUR […] for achieving certification for an interlocking in a given country.594 The Commission continues to consider […]example as valid for interlockings (framework contract), as submitted by the Notifying Party.595

(746)    The average project size for standalone interlocking is EUR […], while […]% of the projects are larger than EUR […].596 The Commission acknowledges that the homologation and adaptation costs reported by the various competitors represent a higher share of the project value than it is the case for ETCS ATP overlay/re- signalling and ETCS OBU projects (see recitals (776)-(777) and (805)-(808)).

(747)    The Commission further notes that, contrary to the Notifying Party's arguments, it considers the total market size for interlockings in a given country a relevant measure for assessing adaptation costs to that country, as it represents the available opportunities that a new entrant can expect to have in that country. This is confirmed by the Notifying Party when it notes that transparency in deployment plans by infrastructure managers is a factor that encourages entry, as set out in recital (834).

(748)    The Commission acknowledges that, for some projects of small size, these costs can represent a significant barrier for those suppliers not already present in that country o submit a competitive offer. This is however mitigated by the following factors: (i) these costs may be amortised over several projects in the same country that would follow the award of the first project; (ii) the Parties themselves recognise that increased transparency on the deployment plans of infrastructure managers provides  a greater incentive to bid for suppliers not present in a country,597 and (iii) where one project does not have sufficient size to attract competitors not already present in that country, there may be other tenders by the same customer of a larger size. As discussed in recital (778), these views are shared by some of the competitors.

(749)    The Commission considers that the EULYNX standardisation initiative, despite  being at an early stage, will further decrease adaptation costs for interlockings as it will harmonise some of the interfaces which are currently not standard. The Notifying Party expects this reduction in costs to be of […].598 As the Notifying  Party submits, "EULYNX may lower non-incumbents’ authorisation costs for products and systems. In addition to obtaining cross acceptance for the generic functionality of an interlocking, a supplier could obtain cross acceptance for the interfaces, which could reduce the time and cost associated with homologating a system in a new Member State. National authorisation of the country-specific functionality would still be required (although, in future, there may be additional convergence of functionality requirements). This would facilitate cross-border expansion of formerly national suppliers as certification for interfaces and generic functionality would only need to be obtained in relation to the first project".599

(750)    Second, from a supply-side substitutability point of view, the same baseline interlocking products developed by the respective suppliers are used in each Member State after adaptation. (Alstom: Smartlock 400; Siemens: Trackguard Westlock, Westrace and SIMIS; CAF: Quasar; Thales: LockTrac Bombardier: EBI LOCK). In theory, a competitor with a presence in at least one Member State and a track record in the EEA should be able to enter a new Member State subject to being able to overcome the requirement to adapt its product to national specifications and  customer preferences. The Commission considers that the use of standard platform/products in tenders across different EEA countries provides an indication that competitive conditions are similar across the EEA.

(751)    The market investigation provided mixed as to whether interlocking projects differ significantly in terms of customer preferences, technical specifications and  regulatory requirements across the EEA. While some respondents claim that there  are different technical specifications and operating rules as well as specific requirement for national homologation;600 others indicate that national requirements are similar and do not act as a barrier to entry601 or that interlocking systems can otherwise be adapted for use in different countries and that differences across the EEA are not significant.602

(752)    Contrary to the Notifying Party's views that the Commission is wrong to consider  that   the   same   interlockings   applications   are   used   throughout   the   EEA,  the Commission notes that, […].603 This shows, in the Commission’s view, that most EEA countries are served by one interlocking platform and the other Alstom’s platforms correspond to legacy technology. The same applies for Siemens, which uses only three platforms for the whole EEA, largely as a result of previous consolidation and the legacy situation in a number of EEA countries. Therefore, the Commission’s view that the same platform(s) are used throughout a large number of EEA countries remains valid.

(753)    Third, the evidence available to the Commission, based on the EEA countries where the Parties have submitted bidding data, non-incumbent suppliers are frequently bidding and winning. The Commission defines an incumbent supplier for the market of standalone interlockings as a supplier already providing the interlockings in a given country prior to 2008. Homologation of interlocking systems by winning an ETCS ATP wayside re-signalling tender is also accounted as entry into the  standalone interlocking market.

(754)

(755)                            Table 25 shows that in the 2008-2018 period, non-incumbent suppliers submitted bids in […] out […] countries and won tenders in […] out of […] countries. This is so despite the fact that in some countries there were many suppliers of interlockings (e.g. Spain, Netherlands), which means that the chances to win for new bidders not present in the country were comparatively small relative to those countries with only one or two incumbent suppliers. The Commission has only included in this analysis countries where tenders took place in the 2008-2018 period.

(756)                            With regard to the Parties' argument in their response to the Letter of Facts in relation to the inclusion of non-contestable projects for the purposes of geographic market definition,604 the Commission notes that only contestable projects have been considered as, by their nature, entry cannot occur in non-contestable projects, awarded to suppliers already present in that country.

(757)                            The Commission further notes that the latest version of the CPL (Annex RFI 174 – Q8) includes contestable projects for standalone interlockings in Slovenia.

(758)                            As regards the revised Table provided by the Parties in response to the Letter of Facts,605 the suggested variations contained therein would not alter the Commission’s conclusions.

(759)                            In relation to the (non-)inclusion of Ansaldo as an incumbent supplier of interlockings in the UK,606 the Commission has decided not to include it as an incumbent, despite the Notifying Party's statement in the Form CO, namely:  "Ansaldo STS had previously delivered an interlockings project. In 1999, Network Rail awarded Ansaldo STS a re-signalling project at the Manchester South station, as a result of which it has homologated an interlocking in the UK in 2001. There were, however, challenges with that project. Hitachi/Ansaldo is homologating a different, newer interlocking with the 2016 project".607 The decision not to include Ansaldo is based on the Commission’s understanding that Ansaldo did not have a functioning interlocking in the UK as it had to undergo homologation for a new interlocking again in 2016.

(760)                            Regarding the (non-)inclusion of Ansaldo as an incumbent provider of interlockings in Romania,608 the Commission notes that, as submitted in the Form CO,609 Ansaldo has only homologated a hybrid interlocking in Romania, which can only be used for certain projects. For this reason, the Commission has not considered Ansaldo an incumbent supplier of interlockings in Romania, as its competitive pressure cannot  be compared to that of other existing suppliers of interlockings in Romania. In any event, this would not change the Commission’s conclusion in relation to Romania.

(761)                            The Commission has modified its analysis on non-incumbent bids and wins to include the Parties' comments in their response to the Statement of Objections, in particular as follows: (i) entry of suppliers already active in a given country in markets other than standalone interlockings projects such as rail engineering, for example in Spain (ENYSE/SICE, CAF through acquisitions), Finland (Mipro), Austria (RDCS) and the UK (Atkins), has not been considered as entry for the purposes of geographic market definition (marked as * in

(762)                            Table 25); (ii) some countries which were not in the corresponding Table in the Statement of Objections have been added, namely those where contestable tenders  for standalone interlockings projects occurred in the 2008-2018 period (for which the Commission has taken the list of incumbents provided by the Notifying Party for those countries), and (iii) exclusion of non-signalling suppliers such as Semi (Spain) or Verebus/Sweco (Netherlands), (iv) given the limited scope of Alstom's win in Portugal (level crossing project), it has not be counted as entry (marked as ** in the Table), and (v) Siemens and Alstom have been considered incumbents in Greece.610

Table 25: Non-incumbent bids and wins in standalone interlocking projects, 2008-2018

Source: CPL and Form CO

Note: the list of incumbents has been obtained from the Notifying Party’s description of each of the markets in the Form CO; where such information was not available, it has been derived from the list of incumbents active on 1 October 2007 (Parties' response to Article 6(1)(c) Decision, data pack). The Commission has accepted the Parties' amendments in their response to the Letter of Facts, except  for

(i)   changes resulting from non-contestable projects (see recital (756)), (ii) those explained in recitals (759)-(760), namely Ansaldo in UK and Romania, and (iii) those where entry is considered “de novo” (suppliers, such as Atkins, Mipro, ENYSE/SICE, and RDCS, already active in a given country in markets other than standalone interlockings projects such as rail engineering), as explained in recital (761). If “de novo” entry were to be considered, it would increase the number of countries where  entry took place.

(763)                             The Commission disagrees with the Notifying Party’s arguments that the assessment should be carried out relative to all the available opportunities, and not on a  country-

by-country basis.611 Given the limited number of bids and the considerable time needed to homologate an interlocking project, the Commission considers that potential entrants act according to long-term plans to initiate activities in a given country where they are not yet present, identify certain tenders where successful  entry is more likely and bid accordingly, which necessarily limits the number of tenders where they would participate. Moreover, an analysis based on all available opportunities would overstate the participation of incumbent suppliers, who necessarily bid in all or most tenders, as they have a homologated product in the countries where they are present. The higher the number of these incumbent suppliers, the higher the overstatement of their participation if accounted by the number of bids. Therefore, the Commission takes the view that a country-by-country analysis provides a more accurate representation of entry dynamics in mainline signalling markets for the purposes of geographic market definition.

(764)                            The Commission notes that a factor that facilitates that suppliers not present in a given EEA country bid and potentially win in tenders is that, in many cases, homologation can actually occur after the award of the tender (not as a prerequisite  to participate). According to the information available to the Commission, this is common practice at least by some infrastructure managers.612

(765)                            Fourth, the CPL shows that the participation in standalone interlockings tenders across the EEA is limited to the same limited set of competitors, who typically bid in many EEA countries. The Commission acknowledges an increased presence of local competitors in certain countries, although overall the list of providers that are active in a high number of countries in the EEA is limited to the Parties, Thales, Bombardier, to a lesser extent Ansaldo, and AZD only in Eastern European  countries. The number of countries where suppliers have bid are: Siemens ([…]), Alstom ([…]), Thales ([…]), Bombardier ([…]), Ansaldo ([…]), CAF ([…]), AZD ([…]). Other regional players, such as CAF ([…]) and AZD ([…]) have a very  limited bidding activity. There are a number of local players active in one or two countries only: […].613

(766)                            Fifth, the fact that market shares greatly fluctuate across countries (see Form CO, Chapter C.1, Annex RFI 21 Q1) does not affect the Commission’s assessment, as this can be due to historical reasons and the lumpiness of market shares in standalone interlocking markets, as a result of the fact that this market is a bidding market.

(767)                            The results of the Phase I market investigation were inconclusive as to whether the market for the supply of interlockings should be considered as national or EEA-wide in scope. When asked specifically about the relevant geographic scope for interlocking systems, respondents were similarly split with just over half considering the appropriate geographic market was national in scope and the remainder considering it should be at least EEA-wide.614 The majority of customers responding to the same question in the market investigation consider that the relevant geographic scope of interlocking systems is at least EEA-wide.615

(768)                            The Phase II market investigation supports the fact that some suppliers not active in a given EEA country are credible bidders. While some infrastructure managers show  a

preference for established suppliers, other mention non-incumbents as credible bidders in their tenders. For example, […] mentions "Siemens, Bombardier, Alstom, Thales" as credible suppliers in tenders for interlockings and ETCS ATP wayside (both re-signalling and overlay), while […] states that it considers "basically the UNISIG ones with 5 to 10 minor companies" (both for IXL, ETCS ATP overlay and re-signalling).616 […] also submits that "Thales, Siemens, CAF, Ansaldo (has not made an offer yet but we know their technology from other Infrastructure managers) and Iskra (if relay interlockings)" are credible IXL suppliers.617

(769)                            The Commission also notes one of the arguments of the Notifying Party supporting an EEA-wide geographic market in urban signalling. The Notifying Party submits that customers purchase from suppliers from across the EEA and that "the fact that certain suppliers did not bid in tenders during a given period in a particular country should not be taken as evidence that those suppliers could not have bid in that tender or could not bid in future tenders in a particular country".618 The Commission considers that a similar situation applies in mainline signalling which could speak in favour of an EEA-wide market.

(770)                            The Commission notes that, while some factors point to an EEA-wide geographic market for standalone interlocking projects, such as the use of similar platforms across countries, entrants bidding and winning and the presence of the same suppliers across a large number of EEA countries, other factors point to a national geographic scope, such as a more important presence of local suppliers in some EEA countries, the absence of EEA-wide standardisation with the exception of the EULYNX initiative (in contrast with ETCS ATP wayside overlay/re-signalling or ETCS OBU projects) and a higher share of national adaptation costs relative to project value (whereas this share is lower for ETCS OBUs and ETCS ATP wayside overlay/re- signalling projects).

(771)                            On balance, for the reasons set out in recitals (745)-(770), the Commission considers that the relevant geographic markets for standalone interlockings projects is national and will undertake the competitive assessment on that basis.

(C.iv)     ETCS ATP wayside overlay projects (standalone)

(772)                            The Commission considers that the relevant geographic market for ETCS ATP overlay projects is EEA-wide in scope for the reasons set out in recitals (773)-(801).

(773)                            First, although ETCS ATP wayside overlay project still need to undergo national authorisation procedure, ETCS has standardised elements that are reflected in the  TSI compliance requirements. The Notifying Party however highlights that "[f]or an ETCS ATP wayside system, authorisation would include the interface between the ETCS system and the interlocking The process is typically longer [compared to  ETCS OBUs] ([…] years where the customer helps to accelerate the process, but […] years otherwise) because the TSI cover fewer specifications and leave more room for National Technical Rules". In that respect, [...] submits that it "approximates that, on average across the EEA, [20-40]% of requirements (including  NTRs)  are  not  caused  by  TSI".619   Therefore,  a  certain  share  of    the authorisation    process    only    occurs      once    at    the    EEA-level,    for    a    given product/solution.

(774)                            The market investigation supports the view that the adoption of EU-wide authorisation procedures and standards, and in particular of ERTMS, is developing homogeneous conditions for competition between mainline signalling suppliers within the EEA.620

(775)                            In relation to the arguments put forward by the Parties in their response to the Statement of Objections, the Commission notes that (i) although some respondents to the market investigation pointed to national differences between the requirements for ETCS ATP wayside systems across countries, some of them ([…]) indicate that the market for ETCS ATP wayside systems is EEA-wide in scope;621 (ii) the Notifying Party notes in the Form CO that "[t]he role of NTRs is limited for ERTMS systems since most of the functionality and many of the interfaces are certified at EU level on the basis of TSIs. As a result, the national certification process may be relatively shorter for these systems"622 and (iii) the lower adaptation costs for ETCS ATP wayside submitted by the Notifying Party in Table 69 of the Form CO ([…]) are in line with the Commission’s understanding that these costs are lower due to an EEA- wide standardisation.

(776)                            The Commission notes that, compared to standalone interlockings and ETCS ATP wayside re-signalling projects, ETCS ATP wayside overlay projects have a higher share of EEA-wide requirements (TSI) as no interlockings (with no EEA-wide common functionality) are included in them.

(777)                            The Commission however notes that ETCS ATP wayside systems still need to operate with legacy signalling systems, largely through the interface to interlockings, which to some extent confers a competitive advantage to those suppliers having access to those systems. This advantage is surmountable and therefore not leading to national geographic markets, for the reasons outlined in this Section.

(778)                            Second, adaptation costs for ETCS ATP wayside overlay suppliers not present in a specific country (without access to the legacy signalling system) are low, relative to the project size. For example, an Alstom internal document suggests that […].623 Siemens reports adaptation costs of EUR […] for its ETCS L2 RBC for a EUR […] project in Germany. These costs however, would not need to be incurred in  additional ETCS ATP wayside Level 2 tenders in Germany.624 […] reports country- adaptation costs of EUR […] for a EUR […] project ([…]).625 These examples of ETCS ATP wayside overlay projects provided by the Parties' and their competitors show that adaptation costs that are country specific (e.g. NTRs, interfacing with interlockings) can be surmountable, as they represent a relatively low share of the project's total value, which ranges from […] in the examples included. The average project size for ETCS ATP wayside overlay projects is EUR […], while […]% of the projects are larger than EUR […], which means that there is a substantial share of projects that are large compared to the typical adaptation costs of up to EUR […] submitted by the Notifying Party.

(779)                            The Commission acknowledges that, for some projects of small size, these costs can represent a significant barrier for those suppliers not already present in that country  to submit a competitive offer. This is however mitigated by the following factors: (i) adaptation to NTRs can also be acquired through the award of ETCS ATP wayside re-signalling projects, (ii) these costs may be amortised over several projects in the same country that would follow the award of the first project; the Parties themselves recognise that increased transparency on the deployment plans of infrastructure managers provides a greater incentive to bid for suppliers not present in a country,626 and (iii) where a project does not have sufficient size to attract competitors not already present in that country, there may be other tenders by the same customer of a larger size. The Commission reiterates the arguments set out in recital (747) as to why the overall market size is a relevant measure to compare adaptation costs.

(780)                            As regards the Parties' statement in their response to the Statement of Objections that these three mitigating factors are not relevant for geographic market definition, the Commission disagrees because (i) entry through ETCS ATP wayside re-signalling projects (which also includes interlockings) has to be considered as it represents one possible way for an entrant in a given country to become a bidder/supplier of standalone interlockings sytems, and (ii) buyer power for attracting entry into a given country (either by announcing medium- or long-term plans or by tendering larger projects) should not be regarded as something exceptional, as the Notifying Party suggests, but be assessed as a contributing factor that customers can use for attracting entry into a given country, and therefore relevant for geographic market definition.

(781)                            In this respect, […]notes that adaptation efforts can vary from "very little and significant" depending on "the complexity of the local signalling principles and the delta to the already implemented solutions".627 Some competitors note that the larger the project value the relatively smaller, proportionally, the adaptation costs become (all else equal). Therefore, the ability and incentive for competitors to expand into a new Member State and undertake those adaption costs increases the larger the  project. In that sense, […]notes that the adaptation costs are "reduced the bigger a project gets".628

(782)                            Furthermore, the Parties' internal documents suggest that […].629 […], it confirms the Commission's view that standard solutions can be deployed across different geographies and be adapted to countries where they have not been yet deployed.

(783)                            Third, from a supply-side substitutability point of view, the same baseline interlocking products developed by the respective suppliers are used in each Member State after adaptation (Alstom: Atlas; Siemens: Trainguard OBUs; CAF: Auriga; Thales: AlTrac L1 and L2, Bombardier: Interflo). In theory, a competitor with a presence in at least one Member State and a track record in the EEA should be able  to enter a new Member State subject to being able to overcome the requirement to adapt its product to national specifications and customer preferences. The Commission  considers that the use of standard  platform/products  in  tenders  across different EEA countries provides an indication that competitive conditions are  similar across the EEA.

(784)                            In relation to the Parties' argument that Siemens has two ETCS ATP wayside applications and not one, the Commission notes that (i) this was historically due to past acquisitions, (ii) Alstom has only one ETCS ATP application (for each level),630 and (iii) the Commission’s argument intended to show that ETCS applications are standardised and can be deployed in different EEA countries (with the required national adaptations), which is confirmed by the fact that Siemens has two platforms only and Alstom only one.

(785)                            Fourth, the evidence available to the Commission, based on the EEA countries where the Parties have submitted bidding data, shows that non-incumbents are frequently bidding and winning. The Commission defines an incumbent supplier for the market of ETCS ATP wayside overlay projects as a supplier of interlockings systems in that country prior to 2008, as it understands that incumbents have an advantage in developing the interface to connect to their own interlocking systems. The arguments as to why the Commission undertook its analysis on a country-by-country basis set out in recital (763), also apply to ETCS ATP wayside overlay projects. The Commission has only included in this analysis countries where tenders took place in the period 2008-2018.

(786)                            The Parties have argued in the reply to the Letter of Facts that the Commission’s definition of incumbency for ETCS ATP wayside subsystems (either overlay or re- signalling) is inconsistent and does not align with the operation of incumbency in the market as it would lead to suppliers that previously had won ETCS ATP wayside projects in a country not being recognised as incumbents in the Commission’s analysis. According to the Parties, the Commission’s definition of incumbency is overly broad as it could lead to the same supplier entering the same market multiple times, referring in this context to Siemens’ project win in Belgium in 2015 counting as new entry to the market in Belgium even if Siemens had already won a project in 2004. The Parties also submit that prior homologation of an interlocking does not remove the need for a supplier to subsequently homologate also its ETCS ATP wayside solution.631

(787)                            The Commission considers that its definition of incumbency is appropriate; in particular as being a supplier of interlockings confers an advantage to a supplier of ETCS ATP wayside overlay projects because of the need for it to interface its ETCS ATP solution with the existing interlockings. The Commission does not dispute that an interlocking supplier in a country would also need to homologate its ETCS ATP wayside solution, but the advantage of the interlocking supplier lies in that supplier not facing the same technical and commercial interfacing challenges and risks as suppliers without the existing interlockings technology, considering the need for the ETCS wayside system to communicate seamlessly with the interlockings in place. As regards the Parties' argument in relation to Siemens in Belgium, the Commission notes that Siemens provided an ETCS ATP wayside overlay project in 2004, but, as this was an overlay project, it did not include interlockings. Furthermore, while the 2004 project consisted of ETCS Level 1 technology, the project won by Siemens in 2015632, which the Commission considers as entry, consisted of the more advanced ETCS Level 2 technology.

(788)                            As regards the Parties' arguments in their response to the Letter of Facts in relation to the inclusion of non-contestable projects for the purposes of geographic market definition,633 the Commission notes that only contestable projects have been considered as, by their nature, entry cannot occur in non-contestable projects, awarded to suppliers already present in that country.

(789)                            As regards the revised Table provided by the Parties in response to the Letter of Facts,634 the variations suggested therein would not alter the Commission’s conclusion.

(790)                            In relation to the inclusion of Ansaldo as an incumbent supplier of interlockings in the UK635, the Commission has decided not to include it as an incumbent, despite the Notifying Party’s statement in the Form CO, namely: "Ansaldo STS had previously delivered an interlockings project. In 1999, Network Rail awarded Ansaldo STS a re- signalling project at the Manchester South station, as a result of which it has homologated an interlocking in the UK in 2001. There were, however, challenges with that project. Hitachi/Ansaldo is homologating a different, newer interlocking with the 2016 project".636 The decision not to include Ansaldo is based on the Commission’s understanding that Ansaldo did not have a functioning interlocking in the UK as it had to undergo homologation for a new interlocking again in 2016.

(791)

(792)                            Table 26 shows that in the 2008-2018 period, non-incumbent suppliers submitted bids in […] out […] countries and won tenders in […] out of […] countries. This is so despite the fact that, in some countries there were many incumbent suppliers (Spain, Germany), which means that the chances that new bidders not present in the country would win are very small relative to those countries with only one or two incumbent suppliers.

Table 26: Non-incumbent bids and wins in ETCS ATP wayside overlay projects, 2008-2018

Source: CPL and Form CO

Note: the list of incumbents has been obtained from the Notifying Party’s description of each of the markets in the Form CO; where such information was not available, it has been derived from the list of incumbents active on 1 October 2007 (Parties' response to Article 6(1)(c) Decision, data pack). The Commission has accepted the Notifying Party’s amendments in their response to the Letter of Facts, except for (i) changes resulting from non-contestable projects, and (ii) Ansaldo in UK as explained in recital (790).

(793)                             The Commission notes that a factor that facilitates that suppliers not present in a given EEA country bid and potentially win in tenders is that in many cases, homologation can actually occur after the award of the tender (not as a prerequisite  to participate). According to the information available to the Commission, this is common practice at least by some infrastructure managers.637

(794)                             Fifth, the CPL shows that the participation in ETCS ATP wayside tenders across the EEA is limited to the same set of competitors, who typically bid in many EEA countries. The presence of regional or local competitors is very limited, as shows Table 63. The number of countries where suppliers bid are: Siemens ([…]), Alstom ([…]), Thales ([…]), Bombardier ([…]), Ansaldo ([…]), CAF ([…]), AZD ([…]). This shows that the Parties and Thales, and to a lesser extent Bombardier, and Ansaldo are consistently present in tenders across the EEA. Other regional players, such as CAF (present in […]) and AZD ([…] countries) have a very limited bidding activity. […].638

(795)                            nother supply-side factor that supports a broader than national geographic market definition is the fact that customer references for participating in a tender are relevant across EEA Member States.639 For example, [...] indicates that it would generally require a certain number of kilometres of systems installed and or a number of references of projects and when the project relates specifically to ETCS, it would require a minimum ETCS experience.640 Another customer says that "[t]he requirement of having successfully finished a similar project within the EU is one of the decisive factors. No bid is accepted without proving a successful project within the EU".641

(796)                            Moreover, market participants indicated that for ERTMS, the competitors do not differ between EEA Member States.642 In this regard, all of the major competitors have developed ETCS ATP wayside systems and the majority have deployed them in more than one Member State (see Tables 63 and 74).

(797)                            Sixth, the fact that market shares greatly fluctuate across countries does not affect these conclusions, as this can be due to historical reasons and the lumpiness of  market shares in ETCS ATP wayside system, as a result of the fact that this market is a bidding market.

(798)                            The results of the market investigation are inconclusive as to whether the market for the supply of ETCS ATP wayside systems should be considered as national or at  least EEA-wide in scope.643 When asked specifically about the correct geographic scope of the market for ETCS ATP wayside systems, the majority of competitors indicate that it is at least EEA-wide,644 and an even larger majority of customers also consider the market to be at least EEA-wide in scope.645

(799)                            In relation to demand-side substitutability, the results of the market investigation were mixed as to whether there are significant differences in terms of customer preferences, technical specifications and regulatory requirements across the EEA  such that a signalling solution for ETCS ATP wayside systems deployed in one EEA Member State cannot be used in another EEA Member State.646 While some competitors note that "[…] the core requirements ETCS wayside system are the same for each projects"647 and that "ETCS wayside ATP systems are standardized systems applicable to all EU countries"; other competitors consider that national differences remain, since even though "ETCS was designed to achieve a standard at pan- European level. […] customers usually require the ETCS solution to integrate the legacy system, which implies the adaptation of the ETCS solution to national specifications, safety rules and homologation processes".648

(800)                            The market investigation supports the fact that suppliers not active in a given EEA country are credible bidders. While some infrastructure managers show a preference for established suppliers, others mention non-incumbents as credible bidders in their tenders.649 For example, […] identifies "Siemens, Bombardier, Alstom, Thales" as credible suppliers in tenders for interlockings and ETCS ATP wayside (both signalling and overlay), while […] states that it considers "basically the UNISIG ones with 5 to 10 minor companies" (both for IXL, ETCS ATP overlay and re-signalling). […] also submits that "Thales, Siemens, CAF, Ansaldo (has not made an offer yet but we know their technology from other Infrastructure managers) and Iskra (if relay interlockings)" are credible IXL suppliers.650

(801)                            The Commission also notes one of the arguments of the Notifying Party supporting an EEA-wide geographic market in urban signalling. The Notifying Party submits that customers purchase from suppliers from across the EEA and that "the fact that certain suppliers did not bid in tenders during a given period in a particular country should not be taken as evidence that those suppliers could not have bid in that tender or could not bid in future tenders in a particular country".651 The Commission considers that a similar situation applies in mainline signalling which could speak in favour of an EEA-wide market.

(802)                            In relation to the Parties' arguments in their Response to the Article 6(1)(c) Decision and their response to the Statement of Objections (see Recital (715)) that (i) despite ERTMS efforts ETCS ATP wayside systems require substantial national adaptations and remain subject to applicable NTRs in each country and therefore considers the market national and (ii) ETCS OBU are more standardised at the EEA-level (as  trains need to be able to run across countries) and therefore considers the market to  be EEA-wide, the Commission notes that (i) ETCS OBUs also require interaction with legacy signalling systems and some degree of national homologation and this does not prevent the Notifying Party from arguing that the market is EEA-wide, (ii) ETCS ATP systems are to some extent also standardised at the EEA-level, and (iii) any adaptation to NTRs or interaction with legacy signalling systems represents costs that are surmountable to providers outside a given country and therefore do not give rise to national markets.

(803)                            For the reasons set out in Section 6.2.2 and in light of the results of the investigation, the Commission considers that the relevant geographic markets for ETCS ATP wayside overlay projects is EEA-wide.

(C.v) ETCS ATP wayside re-signalling projects (bundle of ETCS ATP wayside and interlockings)

(804)                            The Commission considers that the relevant geographic market for ETCS ATP re- signalling projects (bundle of ETCS ATP wayside and interlockings) is EEA-wide in scope for the following reasons.

(805)                            First, although ETCS ATP wayside re-signalling projects still need to undergo a national authorisation procedure, ETCS has standardised elements that are reflected in the TSI compliance requirements. Although there are no TSI standards in relation to  interlockings  (all  requirements  are  national),  there  is  a  certain  degree  of tandardisation of ETCS ATP wayside system, as noted in recitals (773)-(774). Therefore, a certain share of the authorisation process only occurs once at the EEA- level, for a given product/solution. The Commission notes that, while ETCS ATP wayside re-signalling have a smaller share of EEA-wide standardised components than ETCS ATP wayside projects (given than the interlocking systems do not have such EEA-wide standardisation), ETCS ATP wayside re-signalling projects require fewer interfaces to existing systems than ETCS ATP wayside overlay projects.

(806)                            The market investigation supports the view that the adoption of EU-wide authorisation procedures and standards, and in particular of ERTMS, is developing homogeneous conditions for competition between mainline signalling suppliers within the EEA.652

(807)                            The Commission understands that the need to interoperate with existing interlockings in a given country's mainline network is more limited than for ETCS ATP overlay projects (an interface with existing interlockings needs to be developed for ETCS ATP wayside overlay projects) than for re-signalling projects (where the interlocking are also replaced and hence only the interface between neighbouring interlocking needs to be developed). The Commission considers that any advantage to existing suppliers arising from being already supplying interlockings in a given country is surmountable and therefore not leading to national geographic markets.

(808)                            Second, adaptation costs for ETCS ATP wayside re-signalling suppliers not present in a specific country (without access to the legacy signalling system) are low, relative to the project size. For example, Alstom reports adaptation costs of EUR […] for an RFF (Réseau Ferré de France, now SNCF Réseau) project in France worth EUR […].653 Siemens reports adaptation costs of up to EUR […] for ETCS ATP wayside and up to EUR […] for interlockings projects.654 […]reports EUR […] for […]  tender (of over EUR […]) and, more generally, EUR […] to adapt and obtain certification for an interlocking according to national rules.655 [...] estimates in EUR […] its adaptation costs for the NTRs for the […]re-signalling tender (worth over EUR […]).656[…] estimates its adaptation costs at EUR […] for a EUR […] project  in [….].657 [...] estimated in […] the need for adaptation for a EUR […] tender in […].658 These figures represent a cost share due to national adaptations of about [[…]]%, which is lower than for ETCS ATP wayside overlay or standalone interlockings projects, and in line with ETCS OBU projects.

(809)                            In relation to the Parties' response to the Statement of Objections (see recitals (715) and (716)), the Commission notes that (i) […] costs correspond to a ETCS ATP wayside re-signalling project but an example of the homologation cost for a standalone interlocking is also provided as it is part of the necessary homologation for any ETCS ATP wayside re-signalling project, and (ii) the same logic applies to the example provided for Siemens: given the Notifying Party's inability to provide an example of adaptation costs for an ETCS ATP wayside re-signalling project, the Commission has used the costs for each an interlocking and a ETCS ATP wayside system as an indication for these costs. The Commission considers that these are  good proxies for adaptation costs.

(810)                            These examples of ETCS ATP wayside re-signalling projects provided by the Parties' and their competitors show that adaptation costs that are country specific (e.g. NTRs, interfacing with interlockings) can be surmountable, as they represent a relatively  low share of the project's total value. For re-signalling projects, adaptation costs are even lower than for ETCS ATP wayside overlay projects or standalone interlockings projects if considered as a share of the overall value of the projects, as re-signalling projects are typically larger.

(811)                            The Commission acknowledges that, for some projects of small size, these costs can represent a significant barrier for those suppliers not already present in that country  to submit a competitive offer. This is however mitigated by the following factors: (i) ETCS ATP re-signalling projects are typically larger than overlay projects and standalone interlocking projects (re-signalling projects in the CPL have an average size of EUR […] and a median size of EUR […], against EUR […] and EUR […] for overlay), (ii) these costs may be amortised over several projects in the same country that would follow the award of the first project; the Parties themselves recognise that increased transparency on the deployment plans of infrastructure managers provides  a greater incentive to bid for suppliers not present in a country,659 and (iii) although one project does not have sufficient size to attract competitors not already present in that country, there may be other tenders by the same customer of a larger size. As discussed in recital (778), these views are shared by some of the competitors. The Commission reiterates the arguments set out in recital (747) as to why the overall market size is a relevant measure to compare adaptation costs. As noted in recital (778), the Commission considers that buyer power should be assessed as a contributing factor that customers can use for attracting entry into a given country, and therefore relevant for geographic market definition.

(812)                            Third, as stated in recitals (750) and (783), the Parties and their competitors use the same ETCS ATP wayside and interlocking platform(s) across all countries in the EEA. The Commission considers that the use of standard platform/products in tenders across different EEA countries provides an indication that competitive conditions are similar across the EEA.

(813)                            Fourth, the evidence available to the Commission, based on the EEA countries where the Parties have submitted bidding data, shows that non-incumbent suppliers previously not present in a given country are frequently bidding and winning. The Commission defines an incumbent supplier for the market of ETCS ATP wayside re- signalling projects as a supplier of interlockings systems in that country prior to  2008. The reason for this choice is that a large share of the cost for a re-signalling project lies with the interlocking (and having a homologated interlocking in a given country would be an incumbency advantage).

(814)

(815)   Table 27 shows that in the 2008-2018 period, non-incumbent suppliers submitted bids in […] out […] countries and won tenders in […] out of […] countries. This is so despite the fact that in some countries there were many suppliers of legacy ATP systems ([…]), which means that the chances that new bidders not present in the country win are very small relative to those countries with only one or two  incumbent suppliers.

(816)   The Notifying Party has argued in its reply to the Letter of Facts that the Commission’s definition of incumbency for ETCS ATP wayside subsystems (either overlay or re-signalling) is inconsistent and does not align with the operation of incumbency in the market as it would lead to suppliers that previously had won ETCS ATP wayside projects in a country not being recognised as incumbents in the Commission’s analysis. According to the Notifying Party, the Commission’s definition of incumbency is overly broad as it could lead to the same  supplier entering the same market multiple times. The Notifying Party also submits that prior homologation of an interlocking does not remove the need for a supplier to subsequently homologate also its ETCS ATP wayside solution.660

(817)   The Commission considers that its definition of incumbency is appropriate, in particular as being a supplier of interlockings confers an advantage to a supplier of ETCS ATP wayside re-signalling projects because a re-signalling project also involves the supply of interlockings, which typically corresponds to the largest share of the project costs. The Commission does not dispute that an interlocking supplier would also need to homologate its ETCS ATP wayside solution, but the advantage of the interlocking supplier lies in that supplier already having part of the overall solution ready, namely the interlocking technology adapted for that country.

(818)   As regards the Parties' arguments in their response to the Letter of Facts in relation to the inclusion of non-contestable projects for the purposes of geographic market definition,661 the Commission notes that only contestable projects have been considered as, by their nature, entry cannot occur in non-contestable projects, awarded to suppliers already present in that country.

(819)   As regards the revised Table provided by the Parties in response to the Letter of Facts,662 the variations suggested therein would not alter the Commission’s conclusion.

(820)   In relation to the (non-)inclusion of Ansaldo as an incumbent supplier of interlockings in the UK,663 the Commission has decided not to include it as an incumbent, despite the Notifying Party’s statement in the Form CO, namely: "Ansaldo STS had previously delivered an interlockings project. In 1999, Network Rail awarded Ansaldo STS a re-signalling project at the Manchester South station, as a result of which it has homologated an interlocking in the UK in 2001. There were, however, challenges with that project. Hitachi/Ansaldo is homologating a different, newer interlocking with the 2016 project".664 The decision not to include Ansaldo is based on the Commission’s understanding that Ansaldo did not have a functioning interlocking in the UK as it had to undergo homologation for a new interlocking again in 2016.

(821)   Regarding the (non-)inclusion of Ansaldo as an incumbent provider of interlockings in Romania,665 the Commission notes that, as submitted in the Form CO,666 Ansaldo has only homologated a hybrid interlocking in Romania, which can only be used for certain projects. For this reason, the Commission has not considered Ansaldo an incumbent supplier of interlockings in Romania, as its competitive pressure cannot  be compared to that of other existing suppliers of interlockings in Romania. In any event, this would not change the Commission’s conclusion in relation to Romania.

(822)   The Commission has modified its analysis on non-incumbent bids and wins to include the Parties' comments in their response to the Statement of Objections,667 in particular the following: (i) entry of suppliers already active in a given country, though not in standalone interlockings projects, such as in Spain (CAF through the acquisition of Núcleo de Comunicaiones y Control S.A and ENYSE/SICE), has not been considered entry for purposes of geographic market definition; (ii) only countries where contestable tenders were organised in 2008-2018 have been retained in the Table, (iii) for countries where no description about incumbency status was provided in the Form CO, the Commission has relied on the list of incumbent providers submitted by the Parties in the data pack.6

Table 27: Non-incumbent bids and wins in ETCS ATP wayside re-signalling projects, 2008-2018

Source: CPL and Form CO

Note: the list of incumbents has been obtained from the Notifying Party’s description of each of the markets in the Form CO; where such information was not available, it has been derived from the list of incumbents active on 1 October 2007 (Parties' response to Article 6(1)(c) Decision, data pack). The Commission has accepted the Parties' amendments in their response to the Letter of Facts, except  for

(i)  changes resulting from non-contestable projects, (ii) Ansaldo in the UK and Romania as explained in recitals (820)-(821), (iii) companies which participated in tenders but do not have signalling manufacturing capabilities (such as engineering companies like Ferrovial or Emte)

(823)   The Commission notes that a factor that facilitates that suppliers not present in a given EEA country bid and potentially win in tenders is that in many cases, homologation can actually occur after the award of the tender (not as a prerequisite  to participate). According to the information available to the Commission, this is common practice at least by some infrastructure managers.669

(824)   This is, for example, highlighted in an Alstom internal document "[…].670

(825)   Fifth, the CPL shows that the participation in ETCS ATP wayside re-signalling tenders across the EEA is limited to the same set of competitors, who typically bid in many EEA countries. The presence of regional or local competitors is very limited,  as shows Table 74. The number of countries where suppliers bid are: Siemens ([…]), Alstom ([…]), Thales ([…]), Bombardier ([…]), Ansaldo ([…]), CAF ([…]), AZD ([…]) and ECM ([…]). This shows that the Parties and Thales, and to a lesser extent Bombardier, and Ansaldo are consistently present in tenders across the EEA. Other regional players, such CAF ([…]) and AZD ([…]) have a very limited bidding activity. […].671

(826)   Another supply-side factor that supports a broader than national geographic market definition is the fact that customer references for participating to a tender are relevant across EEA Member States.672 For example, [...] indicates that it would generally require a certain number of kilometres of systems installed and or a number of references of projects and when the project relates specifically to ETCS, it would require a minimum ETCS experience.673 Another customer says that "[t]he requirement of having successfully finished a similar project within the EU is one of the decisive factors. No bid is accepted without proving a successful project within the EU".674

(827)   Moreover, market participants indicated that for ERTMS, the competitors do not differ between EEA Member States.675 In this regard, all of the major competitors have developed ETCS ATP wayside systems and the majority have deployed them in more than one Member State.

(828)   In that regard, an Alstom internal document […].676 Another Alstom internal document677 […].

(829)   Sixth, the fact that market shares greatly fluctuate across countries does not affect these conclusions, as this can be due to historical reasons and the lumpiness market shares in ETCS ATPs, as a result of the fact that this market is a bidding market.

(830)   As mentioned in recital (798), the results of the Phase I market investigation are inconclusive as to whether the market for the supply of ETCS ATP wayside systems should be considered as national or at least EEA-wide in scope. They were also inconclusive as regards demand-side substitutability.

(831)   The market investigation supports the fact that suppliers not active in a given EEA country are credible bidders. While some infrastructure managers show a preference for established suppliers, others mention non-incumbents as credible bidders in their tenders. For example, […] identifies "Siemens, Bombardier, Alstom, Thales" as credible suppliers in tenders for interlockings and ETCS ATP wayside (both signalling and overlay), while RFI considers "basically the UNISIG ones with 5 to 10 minor companies" (both for IXL, ETCS ATP overlay and re-signalling). […] also submits that "Thales, Siemens, CAF, Ansaldo (has not made an offer yet but we know their technology from other Infrastructure managers) and Iskra (if relay interlockings)" are credible IXL suppliers.678

(832)   The Commission also notes one of the arguments of the Notifying Party supporting an EEA-wide geographic market in urban signalling. The Notifying Party submits that customers purchase from suppliers from across the EEA and that "the fact that certain suppliers did not bid in tenders during a given period in a particular country should not be taken as evidence that those suppliers could not have bid in that tender or could not bid in future tenders in a particular country".679 The Commission considers that a similar situation applies in mainline signalling which could speak in favour of an EEA-wide market.

(833)   The Notifying Party argues that ETCS OBU are more standardised at the EEA-level (as trains need to be able to run across countries) and therefore considers the market to be EEA-wide. The Commission notes that (i) ETCS OBUs also require interaction with legacy signalling systems and some degree of national homologation, (ii) ETCS ATP systems are to some extent also standardised at the EEA-level, and (iii) any adaptation to NTRs or interaction with legacy signalling systems represents costs that are surmountable to providers outside a given country and therefore do not give rise to national markets.

(834)   For the reasons set out in Section 6.2.2 and in light of the results of the investigation, the Commission considers that the relevant geographic markets for ETCS ATP wayside re-signalling projects is EEA-wide.

6.3.  Mainline signalling projects - Competitive assessment – horizontal unilateral effects

6.3.1.           Framework for the competitive assessment

(835)   As regards the Commission's legal framework applicable to the competitive assessment of unilateral horizontal effects of concentrations, reference is made to section 5.3.1.1.

6.3.2.           Horizontal unilateral effects

6.3.2.1.      Notifying Party's view

(836)   The Notifying Party submits that the mainline signalling industry has the following key market characteristics that drive competition in mainline signalling markets: (i) powerful buyers have the choice to increase or reduce the number of bidders depending on their preferences; (ii) increasing standardisation is levelling the playing fields and facilitating entry and expansion; (iii) as a result, a strong group of established players and a growing set of new competitors are fiercely competing in mainline signalling tenders, and (iv) increasing digitalisation and technical  evolutions open the mainline signalling market to new competitors.680

(A)    Powerful buyers have the choice to increase or reduce the number of bidders depending on their preferences

(837)   The Notifying Party submits that customers are highly sophisticated and powerful buyers, given that demand for mainline signalling systems is concentrated, customers have spent years acquiring, operating and maintaining signalling systems and have a deep knowledge of the industry, and are often subject to strict monetary constraints. In addition, customers in different countries are actively exchanging best practices from each other's tender processes.

(838)   In addition, customers often consciously restrict the number of suppliers, focusing on two or three suppliers as long as it provides competitive outcomes. They can however, also sponsor entry of new suppliers whenever they consider it in their interest, which constrains incumbents. Among the tools customers can use to promote entry, the Notifying Party refers to increasing the size of their projects, tendering framework contracts for exclusive supply over several years  and publishing plans for future projects that will allow the use the same technology as in the initial tender (thus increasing the total expected return on investment for suppliers). In order to reduce entry costs, customers can also facilitate the interfacing to the installed technology, decide to roll out ETCS though re-signalling instead of overlay projects, opt for standardised technology and a reduced set of additional national requirements, or allow suppliers to participate in bids even if they do not have a homologated product at the moment of placing their bid. Customers can also use a range of instruments to constrain their chosen suppliers, such as framework contracts (through a two-step tender process).681

(839)   The Notifying Party submits that the Commission's assessment in the Article 6(1)(c) decision should evolve to reflect the crucial implications of buyer power for competition in mainline signalling. Specifically, the Notifying Party refers to (i) buyer power being recognised as a significant constraining factor in industries showing similar demand features to wayside mainline signalling; (ii) powerful customers often chose to limit the pool of actual suppliers; (iii) customers with a small number of actual suppliers benefit from constraints exercised by potential new entrants in tenders; (iv) customers have the proven ability to attract new suppliers where they consider this beneficial for competitive outcomes; (v) internal documents support the conclusion that the Parties are, and will continue to be, heavily constrained by buyer power; and (vi) contrary to the Commission's assessment, the lack of European commercial references does not exclude non-EEA suppliers from the pool of potential entrants. The Notifying Party also submits that the Parties will continue to face significant constraints from well-established and emerging competitors in each national sub-system market.682

(B)    Increasing standardisation is levelling the playing fields and facilitating entry and expansion

(840)   The Notifying Party argues that while local incumbent suppliers have historic advantages, the increasing standardisation contributes to reducing these advantages and lowering entry barriers with regard to OBUs, ATP systems, and interlockings.

(841)   Historically, the advantages for incumbents of purely national mainline signalling systems were due to the need for a supplier to customise its products to local standards, homologate its products and create an interface to pre-existing systems, all through investments that were country-specific. However, in the Notifying Party's view, increasing standardisation reduces the need for investments in developing new solutions, creates opportunities for smaller players to enter by delivering smaller  parts or teaming up with others, reduces the need for authorisation and interface complexity (both ETCS and EULYNX reduce the need for compliance with national rules and interface issues).683 According to the Notifying Party, as ETCS standards have matured, the costs of entry into the ETCS market have decreased significantly, opening the door to expansion and new entry.684

(C)    A strong group of established players and a growing set of new competitors are fiercely competing in mainline signalling tenders

(842)   The Notifying Party submits that the mainline signalling competitor set includes a well-established group of competitors (Bombardier, Thales, Ansaldo), and two previously more local and now rapidly expanding suppliers CAF and AZD Praha.685 The Notifying Party also notes these competitors' progress in ETCS and the fact that the development of ERTMS as de facto international standard outside the EU creates opportunities for non-EU suppliers.686

(843)   In particular, the Notifying Party notes that the Chinese CTCS standard is near identical to ETCS in terms of technical standards and, having developed ETCS systems for non-EU markets, suppliers have a strong basis for competing with ETCS systems in the EEA. It also submits that China Railway Signal & Communication ("CRSC") (active with a CTCS Level 3 solution, equivalent to ETCS Level 2, according to the Notifying Party) is actively taking steps to enter the EEA because it has clear international expansion plans and has already obtained certification for its mainline signalling systems in the EEA (TSI certification for its radio block centre of ETCS Level 2 and for ETCS Level 1 and Level 2 OBUs). Several paths of entry would be available to CRSC, either participating directly in tender processes or partnering with its sister company CRRC.687

(844)   Moreover, the Notifying Party argues that in the EEA there are a number of smaller competitors with a regional focus, such as Scheidt and Bachmann (Germany), Mipro (Finland), Mermec (Italy), ENYSE (Spain), which have a simplified supply structure, cost advantages and local staffing.688

(D)    Increasing digitalisation and technical evolutions open the mainline signalling market to new competitors

(845)   The Notifying Party submits that infrastructure managers are actively pursuing digitalisation strategies (e.g. DB Netze, Network Rail, SNCF, SBB) and this would further level the playing field and open competition from new players, in particular from software or telecom companies.689

6.3.2.2.      ETCS OBU projects

(A)                                    The Notifying Party's views

(846)   The Notifying Party's views are set out in relation to the mainline signalling industry in Section 6.3.2.1, and those arguments also apply to the market for ETCS OBU projects in the EEA.

(847)   In addition, and specifically in relation to ETCS OBUs, the Notifying Party submits that ETCS creates an opportunity for new suppliers to deliver on-board systems across the EEA, as the same OBU could be sold to customers located across the  EEA, also in countries where the OBU supplier was not previously present. The examples of CAF supplying OBUs for trains in the UK and in the Netherlands, and Alstom and Ansaldo supplying OBUs for trains operated in Germany or in the UK, are given as examples.690

(848)   In the Notifying Party's view, while it is usually necessary to create an interface between an ETCS OBU and one or more legacy OBUs, the specifications to develop the interface are becoming widely available to non-legacy suppliers. For some legacy ATP technologies the situation is somewhat different: in France the interface to  TVM technology is in practical terms open to Ansaldo only, and in other countries operators have made available the specifications to the market.691

(849)   Furthermore, the Notifying Party submits that demand for ETCS OBUs has been increasing as the Commission has taken steps to require the installation of ETCS OBUs on new vehicles.692

(850)   In relation to ETCS OBUs, the Notifying Party argues that existing competitors, such as Thales, Ansaldo, and Bombardier are expanding and enhancing their ETCS OBU offering. In addition, smaller players are entering the market and expanding their presence, such as CAF (active in the UK, Spain, Netherlands, Turkey and Mexico), Mermec (recently winning a project in Italy and entering into a JV with Stadler for the supply of on-board systems) and CRSC (that is very close to entering the European market and has recently obtained European TSI certification for its on- board Baseline 2 system).693

(851)   The  Notifying  Party  also  argues  that  customers  such  as  SNCF,  Deutsche Bahn,

Network Rail and Skoda are sponsoring entry.694

(852)   In their response to the Article 6(1)(c) Decision, the Parties argue that the Commission's assessment of the Parties' market shares and bidding data is flawed because (i) the assessment should not be based on historic market shares, (ii) the bidding analysis should reflect the threat by competitors bidding across the EEA, (iii) there is significant evidence that a number of competitors will become more significant constraints going forward, (iv) suppliers now face low barriers to entry and expansion, and (v) there is a growing demand for ETCS OBUs which further increases competitors' incentives to expand their activities.695

(853)   In their response to the Statement of Objections, the Parties reiterate the arguments set out in the Form CO and their response to the Article 6(1)(c) Decision.696

(B)                                     The Commission's assessment - EEA level (B.i)  Market shares

(854)   In ETCS OBU projects, as shown in the following table, the Merged Entity will become the clear market leader in the EEA, representing three-quarters of the market with a market share of [70-80]%. Bombardier will be a distant competitor with a market share more than five times smaller than that of the Merged Entity. The three remaining suppliers, CAF, Ansaldo and Thales, will all have a market share of […]% or less.

Table 28: ETCS OBU projects, market shares, 2008-2018, order intake (by value)

Source: Notifying Party's response to the Commission's request for information RFI 79, Annex 5.3

(855)   The Parties claim to have visibility on all ETCS OBU projects in the EEA in 2008- 2018. Therefore, the market size for contestable projects coincides with the overall market size above.

(856)   Market participants have raised competitive concerns as to the impact of the Transaction in relation to OBU projects in the EEA. The majority of OBU customers have indicated that the Transaction will have a negative impact on their activities in the procurement of OBUs.697 For example, […] considers that the Transaction will result in less competition on the market, a risk of higher prices and less possibilities  to discuss process and adapt the proposed solutions to the company's needs.698 […] anticipates the risk to have a monopoly and "For the ongoing projects […] the risk of removing products from the product portfolio".699 […] indicates that "Reduced competition will cause prices to rise and will reduce our ability as a customer to get good level of service".700

(857)   The vast majority of OBU customers also consider that the Transaction will lead to higher prices for OBUs and none thinks prices will fall.701 For example, […], notes that "We will lose one out of four OBU suppliers, so a significant portion of our negotiation power will disappear" and considers the "main impact might be on ETCS solutions"; 702 while […] indicates that "it may lead to a very dominant player reducing actual competition in this segment".703

(858)      […].704

(859)            On the basis of these market shares and the feedback received by market participants, the Commission concludes that the Parties' combined market share in the   EEA-wide market for ETCS OBU projects is likely to lead to a significant impediment of effective competition.

(B.ii)      Closeness of competition

(860)            Table 29 shows the EEA countries where the different ETCS OBU suppliers have  bid in 2008-2018 (out of a total of […] countries where tenders took place).

Table 29: Countries in which the Parties and competitors have bid for ETCS OBU projects (2008-2018)

Source: CPL, Annex 105 Q2.2

(861)            In terms of EEA countries covered, Siemens and Alstom are ahead of competitors with […] and […] countries each, while Bombardier has bid in […] countries, Ansaldo in […] countries, Thales in […] countries, and CAF in only […] countries. Mermec participated in tenders in Poland only.

(862)            As regards bidding data, the Commission examined the Parties' participation in […] contestable tenders for ETCS OBU projects over a period of ten years (2008-2018). In […] of these tenders there were two or more bidders. Based on the […] tenders, the following statistics can be compiled:

–               The Parties both participated in the majority ([…]%) of all contestable tenders and in […]% of tenders with two or more bidders;

–               Alstom was the most frequent bidder ([…]% of tenders), immediately followed by Siemens ([…]% bids). At a considerable distance follows Bombardier ([…]%), Thales ([…]%) and Ansaldo ([…]%);

–               Siemens and Alstom were the most frequent winners (approximately […]% each), followed by Bombardier ([…]%), Ansaldo ([…]%), Thales ([…]%) and CAF ([…]%);

–               In the […] contestable tenders with two or more bidders in which Alstom bid, Siemens was the most frequent rival bidder ([…]%), followed by Bombardier ([…]%);

–               In the […] contestable tenders with two or more bidders in which Siemens bid, Alstom was the most frequent rival bidder ([…]%), followed by Bombardier ([…]%);

–               Of the […] contestable tenders lost by Alstom, the vast majority ([…] tenders) were won by Siemens, […] by Bombardier, […] each by Thales and Ansaldo and […] by CAF;

–               Of the […] contestable tenders lost by Siemens, the vast majority ([…] tenders) were won by Alstom, […] by Bombardier, […] each by Thales, by Ansaldo  and by CAF.

(863)            The bidding data shows that Siemens and Alstom are close competitors in ETCS OBU projects. […], suggest that the Parties exercise a significant competitive constraint on each other. As submitted by the Parties in their response to the Statement of Objections,706 the Commission acknowledges that the bidding shares of the Parties' competitors are higher in the 2012-2018 period if weighted by tender value (e.g. Bombardier participates in tenders corresponding to […]% of the market value and Ansaldo to […]%). This is however not accompanied by an equivalent share of wins ([…]% and […]% by value respectively), which clearly show Bombardier's and Ansaldo's limited constraint on the market. This is confirmed by the Commission's bidding analysis set out in recital (862).

(864)            The responses to the Phase I market investigation also show that Siemens  and Alstom are considered as close competitors by customers. The large majority of  OBU customers considered that Alstom is the best alternative to Siemens for OBUs and  Siemens  is the best alternative to  Alstom.707  [...]  considers that  "Siemens  and Alstom are dominating the market" and "All other (potential) alternatives are far off"708, […] indicates that "Siemens and Alstom are the most close competitors".709

(865)            The Parties' internal documents show that […].

(866)            Alstom's internal document […]710 […].711 In this respect, the Commission's view is that the Parties' access to legacy signalling systems, and legacy OBUs in particular,  in many EEA-countries confer them an important competitive advantage over their competitors.

(867)            The same Alstom internal document […].

Figure 16: […]

[…]

Source: Form CO, 5.4 documents, Annex Q9.2.14 (868)   In relation to the evolution to BL3, […]. Figure 17: […]

[…]

Source: Form CO, 5.4 documents, Annex Q9.2.14

(869)      […]712 […].

(870)    Regarding other existing competitors in the market for ETCS OBU projects, Bombardier is the only one which has a meaningful market share in the EEA ([…]%) and some bidding activities (participated in […]% of tenders). The Parties' same internal document713 […]. The Commission considers that Bombardier cannot be considered a strong competitor of the Parties, based on the lack of competitiveness of Bombardier's platform, low market share and bidding activity.

(871)    Ansaldo's market share in ETCS OBUs is very low ([…]%) and so too is Ansaldo's bidding activities in ETCS OBU projects in the EEA (Ansaldo is present in only […]% of tenders). Ansaldo also suffers, similarly to Bombardier, from problems  with its on-board platform in terms of price and evolution to BL 3.714 Taken together, these factors suggest, in the Commission's view, that Ansaldo does not constitute a strong competitive constraint to the Parties.

(872)    The Parties consider Thales as a potential threat, considering its efforts to develop an innovative platform for BL 3. Thales has not, however, won any tenders since 2010, with the exception of one tender by the Czech rolling stock manufacturer Skoda in 2016.715 Therefore, Thales' competitive constraint cannot match the Parties' in terms of experience, installed base, customer relationships, etc.

(873)    CAF, a new entrant in the market for ETCS OBUs, has so far almost exclusively sold its OBUs associated to its own rolling stock. The exception is a tender CAF won in Spain in consortium with Alstom and Siemens in 2008. The Commission considers that CAF cannot therefore be considered a competitor for the whole market for ETCSOBUs, as CAF's rolling stock only represent a small part of all ETCS OBU market opportunities.

(874)    The Commission considers that the installed base, track record and reputation will also play in favour of the Parties against its smaller competitors (Ansaldo, Bombardier). [...] shares this view: "Given barriers to entry are high and the  installed base both of rolling stock and [signalling] technology is important, we do not believe that the remaining competitors, notably Bombardier and Ansaldo STS/Hitachi, with a combined market share of 7%, will be able to compete meaningfully and change the competitive situation in the foreseeable time".716

(875)    It follows that the Parties are very close competitors in the market for ETCS OBU projects in the EEA and exert significant competitive pressure on one another. The Parties' internal assessments also show that more distant competitors will not make  up for the loss of competition that will result from the Transaction.

(B.iii)     Innovation

(876)    Competitors and customers note that the main innovations for ETCS OBUs are  driven by the development of the ETCS standard, for example the evolution from Baseline 2 to BL 3.717

(877)    The Commission considers that both Parties are important innovators in ETCS  OBUs, and that the Transaction would therefore remove an important innovator, for the following reasons.

(878)    First, both Siemens and Alstom […].718 […].719

(879)    Second, as noted in recital (868), one of the main innovations or evolutions in ETCS OBUs is keeping up to date with the different releases of baselines of the specifications. In that respect, the Commission notes that Siemens and Alstom are, together with Thales in some aspects, the most advanced suppliers in terms of readiness for BL 3 Release 2 and experience in BL 3 ETCS OBU projects.

(880)    On innovation in ETCS OBUs, [...]notes that "Siemens and Alstom have developed OBUs ETCS for nearly ten years" and that the Parties are strong innovators and against whom other suppliers benchmark themselves since "having strong innovative leaders pushes other suppliers to innovate as well".720 The large majority of ETCS OBU customers that responded to the Phase I market investigation also agree that Siemens and Alstom are the number 1 and number 2 players in R&D activities, in relation to OBUs.721

(B.iv)     Competitive advantage due to access to legacy signalling systems

(881)    The Commission's view is that the Merged Entity will enjoy a competitive advantage which would in turn weaken competitors and significantly decrease competition post-Transaction, due to the Parties' access to legacy signalling systems and the Parties' stronger position for international corridors(882)    As noted in recital (866), one of the crucial elements of mainline signalling systems is the know-how and the ownership of specific interfaces between legacy/conventional systems and ETCS – including the relevant "STMs" (specific transmission modules).722 STMs allow seamless interface between ETCS OBUs and legacy (class B) infrastructure. Availability of suitable STMs is therefore vital for rolling stock/OBU manufacturers selling trains for use on many routes – but the STMs are in general subject to intellectual property rights and controlled by particular manufacturers. Of each legacy system there is usually only one producer, with a long-lasting experience in the legacy system and qualified in ETCS market, which produces the Member State specific STM. During the transition phase in which ETCS will not be available throughout the entire cross-border routes including last miles, alternative routes and nodes, STMs will determine the possibility to access a Member State network. As such, the Merged Entity will de facto have the ownership of many specific interfaces between legacy/conventional systems and ETCS across the EEA and thus strengthen its incumbency advantage compared to its competitors.

(883)    The Parties will also have joint incumbency in pairs of neighbouring countries which may result in a strong position for international corridors through the installed conventional wayside systems in the two neighbouring countries. If data on sales of interlockings in the period 2012-2017 are considered, as submitted by the Notifying Party, the merger would potentially affect international corridors between Denmark and Germany, Germany and France, Netherlands and Belgium, Belgium and Germany, Belgium and France, Austria and Germany, Austria and Italy, and France and Spain.723

(B.v)      Entry/potential competitors

(884)    The Commission considers that entry is unlikely in the EEA market for ETCS OBUs and would, in any event, entail significant investment and uncertainty.

(885)    Stadler has announced that it will form a JV with Mermec724 in order to develop an ETCS OBU jointly. This project, however, is expected to take a number of years and, even when Stadler's OBU is fully developed, […].725 Furthermore, this JV is oriented towards equipping Stadler's own rolling stock, a small fraction of the market. These factors suggest, in the Commission's view, that Stadler/Mermec will not represent a significant competitive constraint to the Parties in the foreseeable future.

(886)    In relation to AZD, as the Notifying Party notes, […].726 The Commission is not aware of any steps of AZD developing an ETCS OBU solution and therefore considers that it is unlikely that it will impose a significant competitive constraint in the foreseeable future.

(887)    In relation to CRSC as a potential supplier of OBUs in the EEA, the Commission notes that CRSC's has already received European TSI certification for its ETCS L1 and L2 OBUs, issued by Ricardo Certification (NoBo).727

(888)    The Commission's view is that these potential entrants in the EEA-wide market for ETCS OBUs will not likely offset the competitive constraint exerted by the Parties, for the following reasons.

(889)    First, significant investments are needed in order to develop an ETCS OBU and to keep with the new releases of the standard (baseline 3). [...] highlights that "The development of an ERTMS solution requires significant investments and costs for new entrants".728 This is also confirmed by […], an OBU customer of the Parties, which is developing ETCS OBU technology, and states that "[…]".729

(890)    Second, access to legacy systems is one of the main parameters of competition in ETCS OBUs, as discussed in recital (866) and therefore would act as a barrier to entry. The possible new entrants do not generally have access to legacy signalling systems with the exception of one or two countries. [...] agrees noting that "legacy systems are a significant barrier for ETCS OBU market, from 2 perspectives: - Integration: the legacy system has to interface with the ETCS and this requires a R&D investment per system/country, which usually cannot be covered by the revenue of single projects. - Competitivity: depending of the country, the legacy system/STM has to be provided by the ETCS supplier, who has to buy it from the original legacy supplier (usually a competitor) thus creating an economic disadvantage". 730

(891)    Third, references, installed base and commercial track record are needed, also in terms of reputation. [...], for example, notes that "New Player – market introduction and lack of references [are the] most difficult barrier" which would disadvantage  new players in terms of reputation.731

(892)    Fourth, some of the newer players or entrants, such as Stadler or CAF focus on their own rolling stock and therefore, will not be in a position to replace the competitive constraint exerted today by the Parties.

(893)    Fifth, CRSC's entry in the ETCS OBU market in the EEA is unlikely in the foreseeable future. To date CRSC has not been awarded any contract nor participated in any mainline signalling tenders in the EEA. The Phase I market investigation supports the Commission's findings that CRSC will not likely become a credible supplier of ETCS OBUs in the foreseeable future. No OBU customer that responded to the market investigation states having had CRSC as a candidate in a OBU tender  in the EEA over the past ten years (only […] for a non-EEA project). In that respect, […] submits that "We know the China quality, mentality and technical capabilities from other projects, which is why we are preferring European suppliers".73(894)    Sixth, in relation to other Asian suppliers, the majority of respondents who expressed a view took the view that it will take them more than five years to be able to submit a credible bid.733

(895)    Seventh, the Commission does not consider that the foreseen expansion of the ETCS OBU market in the EEA will, as submitted by the Parties in their response to the Statement of Objections,734 significantly increase the likelihood of entrants or small ETCS OBU suppliers of significantly expanding its activities in the EEA, for the reasons outlined in recitals (884)-(895).

(896)    It follows that potential entry in the market for ETCS OBUs is unlikely and in any event will not make up for the loss of competition that will result from the Transaction.

(B.vi)     Conclusion – ETCS OBU projects

(897)    For the reasons set out in sections 6.3.2.2 (B.i)-(B.v), and in light of the results of the investigation, the Commission considers that the Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects in relation to ETCS OBU projects in the EEA.

6.3.2.3.      Legacy OBU projects

(898)    As discussed at Section 6.2.1.3, the Commission considers that ATP wayside and OBU projects should be segmented into legacy and ETCS projects, each constituting a separate product market.

(899)    In this section, the Commission will analyse only the market for legacy OBU  projects in Belgium because it is the only country for which the Commission has concerns relating to legacy OBU projects.

(A)                                    The Notifying Party's views

(900)    The Notifying Party indicates that the Parties activities in legacy OBUs are largely complementary and the overlap limited. Only Belgium, in which both have a homologated product, would amount to a potential relevant market.735

(901)    In Belgium […].736  According to the Notifying Party, […].737

(902)    The Notifying Party submits that the Merged Entity will be constrained by the threat of new entry: SNCB owns the legacy technology and has made the specifications accessible to any supplier that want to develop a legacy TBL1+ OBUs, as Siemens did. In addition, the legacy OBU market in Belgium is expected to decrease in the future given Infrabel's roll-out plans for ET(903)    In their response to the Statement of Objections, the Parties reiterate the arguments set out in the Form CO and their response to the Article 6(1)(c) Decision, adding that certain suppliers already have experience with the relevant legacy technology  as Hasler Rail) and that the underlying technology is simple so that suppliers could develop their own legacy ETCS/TBL1+ legacy OBU.739

(B)         The Commission's assessment

(904)    In the period 2008-2018, Alstom was the sole supplier of legacy OBU projects in Belgium.740 It therefore held a monopoly on this market. Post-Transaction, the Merged Entity is likely to hold the main position in the Belgian market. Absent the Transaction, given that Siemens has a homologated legacy OBU in Belgium, Siemens could have easily become a legacy OBU supplier in the Belgian market.

(905)    Siemens, as the only available alternative supplier with a homologated […] in Belgium, is a credible competitor to which legacy OBU customers could turn to should they wish to seek better terms from Alstom through competitive tendering. After the merger, this option will no longer exist. The Commission rejects the Notifying Party's argument that other suppliers would be in the same position as Siemens post-Transaction, given that these suppliers do not have a homologated TBL1+ OBU in Belgium and would need to incur the costs of developing one.

(906)    In the Commission's view, new entry into the market for legacy OBUs in Belgium is unlikely because: (i) […]; (ii) TBL1+ technology could only be used in Belgium, unlike ETCS, which removes some of the incentives of possible entrants to develop an alternative legacy OBU to those of Siemens and Alstom.

(907)    Furthermore, the Commission considers that, while Belgium has ambitious plans for ETCS deployment, TBL1+ technology is likely to remain active for a number of years, as it was deployed relatively recently and was linked to the deployment of ETCS Level 1. TBL1+ has been in operation since 2005 and deployment was completed in 2015.741

(908)    For the reasons set out in recitals (904)-(907), and in light of the results of the investigation, the Commission considers that the Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects in relation to legacy OBU projects in Belgium6.3.2.4.      Interlockings (standalone)

(A)                                    The Notifying Party's views

(909)    The Notifying Party submits that the Transaction will not significantly impede effective competition in the standalone interlockings markets as the Parties will be constrained by actual and potential competitors and by the buyer power exerted by sophisticated customers that are able to facilitate entry. In particular, the Notifying Party submits that customers will continue to have sufficient alternative suppliers available from actual competitors present in the markets today, but also have the ability to sponsor entry when they consider it desirable to do so. It further submits that the Parties pose no greater constraint than any other actual or potential competitor.74

(910)    The Notifying Party submits that customers have been able to attract a variety of alternative suppliers to tenders and provides examples of sponsored entry for standalone interlockingprojects in various countries, including the UK, and  examples of sponsorship for ETCS re-signalling projects which enabled a new supplier to homologate an interlocking in the relevant country.743

(911)    The Notifying Party submits also that EULYNX will further increase competition in the supply of interlockings by opening national markets to new entrants and to smaller suppliers because: (i) an open standard supports widespread adoption and development, (ii) EULYNX members have also proposed developing standardised interfaces between interlockings and ATP systems, and (iii) EULYNX supports competition by specialised suppliers (disaggregation of systems). According to the Notifying Party, the EULYNX consortium anticipates the share of EULYNX signalling systems.744

(912)    In their response to the Statement of Objections, the Parties submit that the Statement of Objections is based on "unsubstantiated generalisations" and fails to take into account the competitive dynamics of the different national markets. They argue that the objections are based on the Parties’ combined market shares and bidding data and the Commission "ignores" the competitive constraints imposed by rivals in the relevant countries. The Parties note that in the majority of the countries in which the Statement of Objection raises issues there is, in fact, no actual sales overlap between the Parties, and there are only two national markets, namely Belgium and the UK, in which "the data might support the view that there are limited rivals actively competing today". Even in Belgium and the UK, the Parties submit that the Transaction would not produce a significant impediment to effective competition in view of the countervailing buyer power that the infrastructure manager exerts and in view of the threat of entry from other suppliers. In short, the Parties consider that the Statement of Objections is "fundamentally flawed" because the bidding analysis conclusions are based on a "biased review of a limited number of tenders", the constraints imposed by rivals is not taken into account, and the conclusions that the Parties are "closer competitors to each other than to rivals" lacks basis. There is also, according to the Parties, no in-depth analysis of countervailing buyer power exerted by the infrastructure managers in each country, the Statement of Objection "ignores" the different competitive conditions in each market, and the Commission "cherry picks" excerpts from the Parties’ internal documents and ignores other instances where the competitive constrains imposed by rivals are considered by the Parties.745

(B)   The Commission's assessment – national level (B.i)             

(913 Countries in which affected markets ariseCountries in which affected markets arise

(914)    Table 30 below shows the countries in which affected markets arise for interlocking projects in the EEA based on market shares (by order intake) in the period 2008- 2018.

Table 30: Standalone interlocking projects, market shares, actual overlaps (order intake, 2008-2018)

Source: Parties' response to the Commission's request for information RFI 79, Annex 5.3; RFI 131, Question 6.

(915)    Based on the market shares, in Spain, the Merged Entity will be the market leader with a market share of [40-50]% and the second largest competitor will be Thales with a market share of [20-30]%. In the UK, the Merged Entity will have a dominant position with a market share of [70-80]%, and the second player, Atkins will be more than seven times smaller at [10-20]% market share. In Croatia, the Merged Entity will be dominant with [90-100]% market share for the period 2008-2018 and [90- 100]% market share for the 2012-2018 period.747 In Portugal the Merged Entity will be the largest player with a market share of [50-60]% and the next largest identified competitor will be Thales with a market share of [5-10]%.

(a)                    Spain

(916)    The Notifying Party submits that the Transaction will not result in a significant impediment to effective competition in the market for standalone interlocking projects in Spain because there is a large supplier base that will continue to exert significant constraints on the Merged Entity. There are seven incumbent suppliers of interlockings in Spain, namely the Parties, Bombardier, CAF, Ansaldo, Thales, and ENYSE. ENYSE is a Spanish regional player active in interlockings only in the "Iberian gauge" (1668 mm) network, namely on lines fitted with legacy ATP. Ansaldo, on the other hand, is only active in interlockings on the standard gauge (1435 mm) network. Others are active in both. According to the Notifying Party, these suppliers will continue to pose a significant constraint as the infrastructure manager ADIF works to upgrade its interlockings. Furthermore, the Notifying   Party expects entry of new players, as ADIF has generally favoured re-signalling projects and is expected to continue to do so in the future.748

(917)    In their response to the Statement of Objections, the Parties repeat some of their arguments made in the Form CO and in response to the Article 6(1)(c) Decision. They also submit, in particular, that the market is competitive with five homologated suppliers in addition to the Parties that provide an equal or greater competitive constraint as the other Party. According to the Parties, it is incorrect to conclude that the Parties are close competitors, […]. The Parties further argue that the internal documents cited in the Statement of Objection do not support the conclusion that the Parties are close competitors, that the installed base of the Parties in Spain does not confer them any advantage in tenders, and ADIF will face sufficient alternative viable suppliers to be able to exert buyer power.749

(918)    The Commission, however, considers that the Transaction would cause a significant impediment to effective competition in standalone interlocking projects in Spain.

(919)    First, based on market share figures (by order intake) in the period 2008-2018, the Merged Entity will have a high market share of [40-50]% (Siemens: [30-40]%, Alstom [10-20]%), far higher than any of its competitors (Thales: [20-30]%; Bombardier: [10-20]%; CAF: [10-20]%; ENYSE: [0-5]%). Post-Transaction, the Merged Entity would be almost double the size of the next player on the market, namely Thales, and three times the size of Bombardier. There are seven homologated suppliers of interlockings in Spain but only six have had success in securing orders for standalone interlockings projects. Of these seven homologated suppliers, ENYSE is only active in interlockings for the Iberian gauge network with legacy ATP, and Ansaldo is only active in interlockings for the standard gauge network, thus limiting the competitive constraint they exert on the market. Ansaldo has, as submitted by the Parties, also only supplied interlockings as part of re-signalling projects and has participated in only one tender for standalone interlockings in 2008 representing […]% of the total value of standalone interlockings projects in Spain in 2008- 2018.750 In addition, the four main players (the Parties, Thales and Bombardier) account for a lion’s share of the total interlockings market in Spain representing […]% of all order intake in the 2008-2018 period. Furthermore, […].751

Table 31: Standalone interlocking projects, market shares, actual overlaps (order intake, 2012-2018)

Source: Parties' response to the Commission's request for information RFI 79, Annex 5.2.

(920)    Second, the Parties are close competitors and exert a significant competitive constraint on one another, as evidenced by the bidding data (see recitals (921)-(922)), but also as perceived by the Parties themselves.

(921)    The Parties were the most frequent and third most frequent bidders and winners of interlocking projects in Spain in 2008-2018. They also met in the large majority of tenders. Only Thales shows a similar participation and winning rate to that of the Parties, with Bombardier and CAF at a certain distance in terms of participation. All other competitors only participated in a small set of tenders. Moreover, the winning rates of competitors other than the Parties, Thales and Bombardier are very low.

(922)    The Commission examined the Parties' participation in […] contestable752 tenders for interlocking projects in 2008-2018 in Spain. On this basis, the following statistics  can be compiled:

(a)           The Parties both participated in a significant number of tenders: Siemens and Alstom were among the most frequent bidders: Siemens bid in […]% and Alstom bid in […]% of all contestable tenders.

(b)          The only other supplier who bid as much as the Parties, was Thales ([…]%). Bombardier was the next closest ([…]%), followed by CAF ([…]%).

(c)           The Parties bid against each other in approximately four out of five ([…]%) contestable tenders.

(d)          Siemens was the most frequent winner ([…]%), followed by Thales ([…]%) and Alstom ([…]%), Bombardier ([…]%) and CAF ([…]%).

(e)           In the […] contestable tenders in which Alstom bid, Siemens was a rival bidder in all tenders ([…]%) followed by Thales ([…]%) and Bombardier ([…]%);

(f)            In the […] contestable tenders in which Siemens bid, Thales was the most frequent rival bidder ([…]%), followed by Alstom ([…]%) and Bombardier ([…]%);

(g)          Out the […] contestable tenders lost by Alstom, most ([…] tenders) were won or partially won in consortia by Siemens, […] by Thales, […] by Bombardier, […] by CAF and […] by local players;

(h)          Out the […] contestable tenders lost by Siemens, most ([…] tenders) were won by Thales, […] by Alstom, […] by Bombardier, […] by CAF and […] by other local players.

(923)    The Parties argue that instead of considering bidding data for the longer 2008-2018 period, a  more  appropriate time period  to  consider would  be 2012  to  2018, as the

onger time period "overstates" the position of Alstom in the interlockings market in Spain.753 The Commission observes that despite […] any standalone interlockings tenders in that period, Alstom has nevertheless participated in […] of the […] contestable tender, thus continuing to exert a competitive constraint on the other players. In fact, Alstom met Siemens in […] tenders it participated in the 2012-2018 period. This does not support the notion, as put forward by the Parties […].754

(924)    The closeness of the Parties is also confirmed by the Parties' internal documents where they assess competitors in tenders. […].

(925)    For example, for the 2014 project La Robla/Pola, a re-signalling project that the Parties summarise […],755 […].756 […].757 As pointed out by the Parties, Siemens considered […].758

(926)    […].759 The Parties contest that this document would show closeness of the Parties, and refers in this context to another Siemens internal document […].760 […].761 This shows that Siemens once again saw Alstom as an equal and close competitor to it.

(927)    Third, the results of the market investigation do not support the view that the Spanish infrastructure manager ADIF has sufficient buyer power to counter any price  increase by the Merged Entity.

(928)    Any buyer power that ADIF has will be significantly reduced post-Transaction by virtue of the fact that (i) by far the Parties and Thales are the most frequent bidders with other competitors participating in and winning a significantly smaller number of tenders; (ii) the vast majority of tenders ([…]% together) are won by the Parties; (iii) […].762

(929)    As the Transaction reduces the number of viable alternative suppliers of standalone interlocking projects in Spain, this arguably also reduces any buyer power that ADIF may have had prior to the Transaction.

(930)    Therefore, the Commission concludes that ADIF cannot be considered to hold sufficient bargaining power post-merger to constrain the Merged Entity.

(b)                   United Kingdom

(931)    The UK railway infrastructure manager, Network Rail, procures through regional frameworks, based on five-year funding cycles known as control periods. It is currently in the final financial year of Control Period 5 (CP5). Control Period 6  (CP6) will cover April 2019 to March 2024. Under CP5, Network Rail procured major signalling projects under the Major Signalling, Renewals, Enhancements Framework (MaSREF). The following suppliers submitted bids on the MaSREF framework: […]763  The MaSREF framework was awarded to the Parties and Atkins.

(932)    Under MaSREF, Network Rail can award projects […]

(933)      […].764 […].765

(934)    The Notifying Party submits that the Transaction will not give rise to competition concerns on the market for standalone interlocking projects in the UK. It submits that the market share data does not reflect competitive conditions in the UK, which is influenced by […].

(935)    […]in the ongoing Control Period 5 (CP5) the participation to contestable tenders organised within the framework is limited only to the three framework suppliers (the Parties and Atkins) and, when tenders are open also to non-framework suppliers, such other players will lack incentives to bid in view of limited value of projects and uncertain prospects of future business opportunities. The tender for the framework contract itself attracts wider participation, […], thus showing that the competition for standalone interlockings projects in the UK is higher than only the three current framework suppliers. In the upcoming tender for Control Period 6 (CP6), the infrastructure manager will once again be able to invite a larger number of suppliers to bid.

(936)    Also, the Notifying Party submits, Network Rail pursues a strategy of  standardisation, digitalisation and diversification of its supplier base, which has allowed Ansaldo to homologate an interlocking through a legacy ATP re-signalling project (Ferriby-Gilberdyke line) awarded to it by Network Rail without requiring upfront homologation.766 The Notifying Party also submits that […]. The Notifying Party further submits that Network Rail is actively promoting the entry  of engineering companies (Amey, Babock Rail, Linbrooke) that could become viable alternative suppliers especially for smaller projects. The Notifying Party, therefore, considers that instead of focusing on past tender data, the competitive assessment should take account of competitors for future tenders.767

(937)    In their response to the Statement of Objections, the Parties repeat their arguments already made in the Form CO and response to the Article 6(1)(c) Decision. The Parties submit, in particular, that the Commission’s findings in the Statement of Objections are based on past data that does not accurately reflect competitive conditions in the UK today. The Parties argue that the competitive assessment of the market should take account of competitors for future tenders and considers that the infrastructure manager is able to sponsor entry as shown by it awarding a first contract to Ansaldo (Ferriby-Gilberdyke) and its engagement with Thales and Bombardier to discuss future opportunities. The Parties conclude that a forward- looking analysis of the market in the UK does not support a finding of a significant impediment to effective competition in the UK market for standalone interlockings.768

(938)    The Commission considers, however, that the Transaction would cause a significant impediment to effective competition in the market for standalone interlocking projects in the UK.

(939)    First, based on market share figures (by order intake) in the period 2008-2018, the Merged Entity will be dominant with a market share of [70-80]% and the next largest identified competitor will be Atkins with a market share of [10-20]%. The market share data reflects the fact that the Parties won the vast majority ([…]) positions as primary contractor under MaSREF. Atkins was awarded […] positions as primary contractor. The majority of work is automatically allocated to the primary contractor. While it is accurate, as the Parties submit in their response to the Statement of Objections, that there was a wider pool of bidders for the initial tender for the CP5 framework contract in 2012, the Parties are the only suppliers with the required interoperable technology ("Westlock" and "Smartlock"), that has been installed throughout the Network Rail network (with the exception of […] that was awarded to Ansaldo).

(940)    The Parties' internal documents confirm that […]769 […].770

(941)    Second, the market investigation has found that the Parties are close competitors since the Parties' interlockings are interchangeable with each other but not with third parties' interlockings.771 There are two interlocking systems installed in the UK: the 'Smartlock' technology owned by Alstom (through its acquisition of GE) and the 'Westlock' technology owned by Siemens (through its acquisition of Westinghouse). Due to historic reasons, having been jointly developed in the 1980s in the context of the tripartite agreement between British Rail, Westinghouse (now Siemens) and General Electric Signals (now Alstom),772 the Smartlock interlockings and related data systems and the Westlock interlockings and related data systems773 can communicate with each other, meaning that Network Rail can effectively switch one product for the other. None of the Parties' interlockings are interoperable with any third party interlockings. As a result, the Parties already have pre-Transaction an advantage over any other suppliers when competing for projects involving interlockings in the UK.

(942)    The bidding data also shows that Siemens and Alstom are close competitors. The Parties met in […]% of contestable bids with more than one bidder. Alstom participated in […]% of the tenders in which Siemens bid ([…]% of tenders with more than one bidder), and Siemens participated in […]% of the tenders in which Alstom bid ([…]% in tenders with more than one bidder). When Alstom bids and does not win, Siemens wins […]% of the time; and when Siemens bids and does not win Alstom wins […]% of the time.

(943)    Even when considering "off-framework" tenders (bidding for which is open to all suppliers), we still see that the Parties are closest competitors. Out of […] such tenders in CP5, Alstom won […], Siemens won […] and in […] cases […] to Atkins who won […]. The only project that was not won by the Parties (or by a supplier relying on their technology) was for a "less complex job" involving interlockings works […].774

(944)    Third, there are few alternative suppliers to the Parties. The Notifying Party submits that Atkins (who is the only other supplier on the CP5 framework) is a strong, long- established  interlockings  supplier  in  the  UK  that  will  continue  to  provide        a significant competitive constraint in the future. The Notifying Party explains that Atkins has recently been purchased by the Canadian engineering firm, SNC-Lavalin, which will increase Atkins' financial and competitive strength.

(945)    Atkins is an integrator and does not have its own signalling technology; Atkins installs exclusively the Parties' equipment. It therefore relies on the Parties, and pre- merger, can benefit from the competitive tension between them. Atkins has won six major signalling projects under MaSREF in CP5: it was 'called off' as primary contractor for two tenders, two tenders were bid on-framework and two tenders were bid off-framework. […]; the only project in which it did not use one of the Parties' interlocking technologies was for the Norwich-Yarmouth-Lowestoft line which is due to commission at the end of March 2019 using, for the first time, the ElectroLogIXS interlocking, […].775

(946)    […] submits that […].776 Moreover, the market investigation shows that the only other interlocking technology installed on the Network Rail network that is not owned by the Parties, is that of Ansaldo which accounts for only […]interlocking in Great Britain and which was only made possible because it won […].

(947)    Fourth, no potential entrant exists that can offer a product that is interoperable with that of the Parties' interlockings currently installed on the Network Rail network. The market investigation shows that, in addition, no potential competitor exists who has access to the Parties' intellectual property, design and compatibility specifications necessary to interoperate with the Parties' installed base. Nor does any potential competitor currently have a sizeable workforce in the UK, together with the requisite scale of operations to provide an integrated end-to-end solution that is currently provided by the Parties.777 […].778

(948)    Fifth, post-Transaction Network Rail will not have the ability to sponsor new entry (even if such a credible entrant existed). As noted above, no alternative suppliers are currently in a position to provide an end-to-end solution in the UK and […].779 As regards Chinese suppliers, […]CRRC has not entered the British signalling market and […].780

(949)    […]781 Therefore, the Commission considers that Post-Transaction, Network Rail  will likely lose any buyer power it currently has.

(950)    The Commission's view that Network Rail will not have sufficient buyer power post- Transaction to overcome the reduction in competition resulting from the Transaction is supported by […]. […]considers that Network Rail's ability to presently exercise buyer power is restricted by the following characteristics of the UK rail industry and Network Rail's structure:

(1)                      Network Rail's status as a public authority may constrain its ability and incentive to exercise buyer power in negotiations with suppliers (due to a number of factors, such as its governance structure and procedures, its financial management incentives, the public nature of operational failures or risk- aversion);

(2)                      Network Rail's ability to exercise choice, a key determinant of buyer power, is very limited considering that for the majority of large, complex signalling projects, Siemens and Alstom are the only two credible bidders;

(3)                      Network Rail does not expect new entrants to be able to enter and compete effectively with the Merged Entity in the foreseeable future;

(4)                      Network Rail's ability to change the structure of supply away from turnkey projects that provide an end-to-end solution (which has been encouraged by the Parties) in favour of multi-sourcing and procure signalling systems on a standalone basis is limited by reason of (i) the complexity of signalling projects and the enhanced reliance of Network Rail on suppliers to provide end-to-end solutions, and (ii) increased level of risk associated with self-implementing which would expose Network Rail to greater operational and reputational risk in circumstances where Network Rail lacks the in-house capability to tender  for standalone projects and aggregate products itself.782

(951)    […]also provides evidence of the likely extent of Network Rail's buyer power using […]783 […]does not indicate that Network Rail has a significant degree of buyer power.784

(c)                    Croatia

(952)    The Notifying Party submits that the Transaction will not give rise to competitive concerns on the standalone interlockings market in Croatia. It submits that in Croatia, interlocking tenders are typically a small component of large rail construction projects tendered by the infrastructure manager, where the signalling suppliers are selected as sub-suppliers by construction companies. It explains that in the 2012- 2018 period, despite […]. The Notifying Party explains that the infrastructure manager has taken steps to facilitate entry to the market by allowing non- homologated suppliers to participate in tenders and by announcing future tenders to incentivise      suppliers      to      homologate      their      interlockings      in  Croatia.

Furthermore[…].785

(953)    In their response to the Statement of Objections, the Parties reject the Commission’s conclusions in the Statement of Objections with regard to the standalone interlocking market in Croatia by arguing, in particular, that (i) the bidding data and submissions by the Croatian infrastructure manager do not show that the Parties would be closer competitors to each other than to other suppliers, and (ii) that post-Transaction there will be five viable alternative suppliers, in addition the Merged Entity, participating  in tenders for standalone interlockings projects in Croatia.786

(954)    The Commission, however, considers that the Transaction would cause a significant impediment to effective competition in the market for standalone interlocking projects in Croatia.

(955)    First, based on market share figures (by order intake) in the period 2012-2018, the Merged Entity would be in complete control of the market with a combined share of [90-100]%. In their response to the Letter of Facts, the Parties provided shares also for the period 2008-2018, reporting a combined market share for the Merged Entity of [90-100]% (Siemens: [40-50]%; Alstom [40-50]%), thus confirming the Merged Entity’s very strong market position in standalone interlocking projects in Croatia.

(956)    The incumbent suppliers of interlockings in Croatia are Alstom, Siemens, and Bombardier.787 Siemens and Bombardier have homologated interlockings in Croatia, and […].788 Thales has also supplied interlockings in projects directly awarded to it  in 2005 and 2009 and the Notifying Party explains that Thales is currently in the process of homologating those interlockings in Croatia.789 The Transaction would remove one of the suppliers with a homologated interlocking in Croatia.

(957)    There were […] contestable tenders for standalone interlocking projects in the period 2008-2018: (i) […]. The Notifying Party submits that in relation to the tender that Alstom won, Alstom was a sub-supplier in the bid presented by Swietelsky, an Austrian construction company, and that the tender included a small component of legacy ATP wayside. The only other bidders for the 2016 and 2018 tenders were […] for the 2018 tender.

(958)    Second, the Parties are close competitors in the market for standalone interlockings  in Croatia. According to the bidding data, the Parties are […] having won contestable tenders in the 2008-2018 period. Alstom met Siemens in […] it participated in. It won the largest of the three tenders, namely the 2018 project […]. Siemens is the legacy ATP wayside supplier in Croatia. The constraint the Parties exert on each other is highlighted by the fact that Alstom's win of the 2018 tender, that included a legacy ATP component, marks the first time that an interlocking project was not awarded to Siemens in Croatia.

(959)    The market investigation also shows that the Parties are generally considered close competitors. When asked about the best alternative in terms of products, product ranges, competitiveness, quality, and innovation, […], considers that the best alternative to Alstom is Siemens, followed by Thales, Bombardier and finally AZD while the best alternative to Siemens is Thales, followed by Bombardier, then Alstom, and finally AZD.790 While the infrastructure manager may put Thales and Bombardier ahead of Alstom in terms of best alternative to Siemens, this does not mean, as suggested by the Parties, that the Parties would be distant competitors.791 Such an interpretation would also be incompatible with the fact that the customer has awarded each of its standalone interlocking projects in the 2008-2018 period to one or the other of the Parties.

(960)    The results of the market investigation also do not support the Notifying Party's argument that the customers have available to them and use a variety of tools to attract new suppliers to their tenders, such as increasing the size of projects.[…], has never used the methods suggested by the Notifying Party. Moreover, […]   consider that all of […] mainline signalling projects in Croatia could be considered small, and that therefore the scope and size of […] mainline signalling projects would have no impact on suppliers' participation in tenders.792

(961)    Third, the infrastructure manager lacks sufficient buyer power to constrain the Merged Entity. With the elimination of Alstom, there will be one less bidder in the tenders, which is likely to reduce any bargaining power HŽ Infrastruktura may have to encourage new entry in order to offset any potential price increase resulting from the merger. Moreover, the Notifying Party has put forward no concrete evidence of other competitors' plans to enter the interlockings market in Croatia in the near future.

(d)                   Portugal

(962)    The Notifying Party submits that the Transaction will not give rise to competitive concerns on the standalone interlockings market in Portugal. A total of at least four suppliers are expected to participate in future tenders and exert considerable competitive constraints on the merger entity: (i) Thales is already active on the market, being an incumbent supplier of interlockings; (ii) Bombardier is taking steps to enter; and (iii) CAF and Ansaldo would be well positioned to bid for future standalone interlockings projects in Portugal, being interlockings suppliers in Spain. Further, the Parties expect participation from more suppliers in future tenders given the infrastructure manager's, Infraestruturas de Portugal (IP), willingness and successful efforts to open up the market to new entrants.793 In the Notifying Party's view, IP has taken steps to open up the market and attract additional suppliers, such  as publishing its future plans, bundle works and allowing for authorisation of interlockings after the tender award.794

(963)    In their response to the Statement of Objections, the Parties repeat some of their arguments already made in the Form CO and in their response to the Article 6(1)(c) Decision. They submit, in particular, that there is no effective overlap between the Parties in Portugal in relation to standalone interlocking projects and the order intake that is attributed to Alstom and giving rise to a [0-5]% market share in the 2008-2018 period concerns not the supply of interlockings, but the "integration of level  crossings with the existing interlockings".795 Portugal is therefore not be considered an affected market, but a market where there is a bidding overlap between the  Parties. The Parties further submit that in any case, the competitive constraint provided by Alstom is limited; Alstom is not in any better position than any other "potential entrant", and the Parties are not each other's closest competitors. The Parties submit that Thales is the closest competitor of Siemens in Portugal. Furthermore, the Parties submit that there will remain sufficient other potential or actual competitors post-Transaction, and to the extent that IP will continue its strategy to not only invite homologated interlocking suppliers (namely Siemens and Thales) to participate in tenders but to open up the market also to non-homologated suppliers,  it  can  be  expected  that  a  sufficient  range  of  suppliers,  includBombardier, CAF and Ansaldo will enter the standalone interlockings market in Portugal.796

(964)    The Commission, however, considers that the Transaction would cause a significant impediment to effective competition in the market for standalone interlocking projects in Portugal.

(965)    First, based on market share figures (by order intake) in the period 2008-2018, the Merged Entity will control half of the market with a combined market share of [50- 60]% (Siemens [40-50]%; Alstom [0-5]%) and the next largest identified competitor will be Thales with a market share of [5-10]%. The market share of Thales may, however, be larger considering that the Notifying Party has allocated a market share of 41% to 'unidentified' competitors, which, in view of Siemens and Thales being the only homologated suppliers in Portugal, suggests that at least part of this "unidentified" share belongs to Thales.

(966)    The Parties attribute a [0-5]% market share to Alstom based on the order intake that Alstom secured for a project awarded in 2009 ("Vouga Line"). The Parties have categorised this as an interlockings project in their submissions to the Commision.797 They argue, however, in response to the Statement of Objections that this does not in fact relate to interlockings but to the "integration of level crossings with the existing interlockings", and that Alstom is not a homologated supplier of interlockings in Portugal.798

(967)    Irrespective of whether the order intake from the 2009 "Vouga Line" contract should be categorised as interlockings or not, the Commission’s concerns on the standalone interlockings market in Portugal remain as Alstom exerts a competitive constraint on the interlockings market in Portugal through its bidding activity in Portugal. The Transaction would eliminate this constraint.

(968)    Depending on whether the 2009 "Vouga Line" project is taken into account or not, there were three, alternatively two contestable tenders in Portugal for standalone interlockings projects in the period 2008-2018. Siemens bid in each tender and Alstom bid in the 2016 tender (in addition to the 2009 tender for the Vouga Line). These tenders are listed in

(969)    Table 32.

Table 32: Contestable tenders for standalone interlockings projects in Portugal (2008-2018)

Source: CPL

(970)    As shown in this table, […].

(971)    Second, the Parties are close competitors in the market for standalone interlockings  in Portugal. The Commission notes that Alstom participated in […] out of […] tenders in Portugal (corresponding to […]% of the value) if the Vouga Line project is included, and in […] tenders (corresponding to […]% of the value) if the Vouga Line project is excluded. Alstom was […] of only […] competitors in the largest of the interlockings tenders organised in Portugal during the 2008-2018 period. This  implies a significant competitive constraint. Despite the customer allowing for non- homologated suppliers to bid in the 2016 tender, only Alstom and Bombardier, in addition to the incumbent suppliers, took part in it. In particular, rivals such as Ansaldo and CAF that were specifically highlighted by the Parties in their response  to the Statement of Objections, did not participate in this tender, despite its large size and absence of requirements regarding homologation.

(972)    Moreover, to the extent that the Vouga Line project is categorised as an interlockings project, it is noteworthy that Alstom managed to secure this contract despite not yet being present in the country. This contract is the only contestable project categorised by the Notifying Party as an interlockings project not won by Siemens in the 2008- 2018 period.

(973)    The Parties' internal documents […]799 […].800 Contrary to the Parties' assertions in their response to the Statement of Objections,801 the internal assessment by Siemens […].

(974)      […].802  […].803 […].804

(975)    Third, as the Transaction reduces the number of viable alternative suppliers of standalone interlocking projects in Portugal, from […], this arguably also reduces  any buyer power that IP may have had prior to the Transaction. While the Notifying Party has argued that IP was able to attract […] suppliers, including […], to participate in its 2016 tender by bundling works over several sections, thus  increasing the volume and value of the project to make it more attractive to non- incumbent suppliers, it has not adduced any evidence to support its claim that in   the future, post-Transaction, IP would be able to attract a "sufficient range" of suppliers, including new entrants such as CAF and Ansaldo, to participate in its tenders.805 What is evident is, however, that of the […] suppliers that IP managed to attract for its 2016 tender, one would now be lost as a result of the Transaction. The Commission therefore concludes that IP cannot be considered to  hold  sufficient buyer power post-merger to constrain the Merged Entity.

(B.ii)     Countries in which the Parties' bidding activities overlap

(976)    In addition, even though there is no actual (sales) overlap between the Parties' activities, the Commission considers that the Transaction will lead to unilateral horizontal effects also in Greece and Romania as the Parties exert a strong bidding constraint on each other.

Table 33: Standalone interlockings, market shares, bidding overlaps (order intake, 2008-2018)

Source: Notifying Parties' response to the Commission's request for information RFI 79, Annex 5.3.

(977)    In their response to the Statement of Objections, the Parties argue that the Statement of Objections disregards the fundamental difference between the countries in which there is an actual sales overlap and countries in which there is only a "loss  of potential competition", and fails to apply the Commission’s guidance on the assessment of the loss of potential competition as included in the Horizontal Merger Guidelines, namely that the loss of potential competition is only a concern where a potential competitor already exerts a significant constraint, and there are not sufficient other potential or actual competitors that could maintain sufficient competitive pressure after the merger. It is submitted by the Parties that neither of these conditions is met in relation to Greece, and Romania.806

(978)    Contrary to the Notifying Party's submission, the countries in which the Parties bidding activities overlap should not be considered markets where there is "potential competition" between the Parties.807 The standalone interlockings market is a bidding market where both Parties are actual competitors in view of their participation in contestable tenders. This is the case in relation to Greece and Romania, […].

(a)                    Greece

(979)    In Greece, based on market share figures (by order intake) in the period 2008-2018, the Merged Entity will have a dominant position, with a [90-100]% market share, which corresponds to Alstom's pre-Transaction market share.(980)    The incumbent suppliers of interlockings in Greece comprise, according to the Notifying Party, […].808

(981)    There were three contestable standalone interlocking tenders in Greece in the period 2008-2018: (i) a tender for the Suburban Ikonio line (project ID GR1345) (ii) a  tender for the Thriasio Depot (project ID K943) and (iii) a tender for the Athens- Thesaloniki-Promachonas line (project ID S3039). Alstom participated […] while Siemens participated in […] of the tenders, namely […]. For Suburban Ikonio, […],809 while for the Thriasio Depot tender, […] participated in addition to civil works companies who also bid.810

(982)    The Notifying Party submits that the Transaction will not significantly impede effective competition in the market for standalone interlocking projects in Greece as post-Transaction, the Parties will continue to be constrained by […] other suppliers of standalone interlockings, […]. The Notifying Party argues that the bidding data is proof of the competitiveness of the Greek standalone interlockings market, where […] suppliers, including […], competed for the 2013 Thriasio project.811 The Parties would also likely face competition in any future standalone interlockings tender from CAF, that has shown interest in the Greek market and participated in the 2014 re- signalling tender that would have also included interlockings.812

(983)    In their response to the Statement of Objections, the Parties repeat some of their arguments already made in the Form CO and response to the Article 6(1)(c) decision. The Parties submit, in particular, that the Transaction does not give rise to any competition concerns because the Parties are not close competitors- This, according to the Parties, is evidenced by the bidding data which would suggest that Siemens is not a "particularly close competitor" to Alstom, and Siemens only participated in the […] interlockings tenders during the 2008-2018 period. One of these tenders was, according to the Notifying Party, not even a "formal tender", but rather the Parties acted as sub-contractors to civil work’s companies that competed for the contract. The Parties further argue that the internal documents of the Parties do not support a finding that the Parties are close competitors, but rather show that the Parties have different views as to which rival is a "closer competitor" and the Parties face competition from other suppliers as much as they do from one another. The Parties also submit that post-Transaction, there will remain alternative actual or potential competitors that would maintain sufficient competitive pressure and in the event the infrastructure manager wishes to introduce a new supplier to the market it will be able to do so, including Bombardier, AZD, Ansaldo, Thales, and CAF. The Parties finally argue that the claim in the Statement of Objections as to the lack of countervailing buyer power by OSE is unfounded and should, therefore, be dismissed.813

(984)    The Commission, however, considers that the Transaction would cause a significant impediment to effective competition in standalone interlockings projects in Greece for the following reasons:

(985)    First, the Parties exert a significant competitive constraint on the market for interlockings in Greece in view of their tender participation. Siemens competed against Alstom in […] contestable tenders for standalone interlockings in Greece in the 2008-2018 period, which were all three won by Alstom. The Transaction would eliminate one bidder and the constraint that this bidder exerted.

(986)    The Transaction would also remove one of the main three suppliers with a homologated interlocking solution in Greece. The infrastructure manager, OSE, would therefore have limited possibilities to switch to other suppliers. Although it may be accurate, as the Notifying Party submits, that also non-homologated suppliers have been able to participate in at least one of the tenders for standalone  interlockings (namely the 2013 Thriasio Depot project), and the infrastructure manager has, as a consequence, more alternatives to choose from, it remains the case that only a homologated supplier, namely Alstom, has been successful in any standalone interlocking tenders during the relevant period. Also, while it may be the case that for some projects the Parties have acted as sub-contractors to civil works companies, it is unlikely especially in such projects that a non-homologated supplier would be considered as an equally attractive sub-contractor to the civil works company as a homologated supplier. If the choice is between homologated suppliers, that choice is therefore very limited in Greece, with only three homologated suppliers for the time being, of which one would be eliminated as a result of the Transaction. Contrary to what is submitted by the Notifying Party, the infrastructure manager would not have "[five] viable alternative[s]" to switch to.814

(987)    Second, the Parties are close competitors in Greece, and are perceived as such by the Parties themselves in their internal documents.

(988)    For example, during the tendering for the Thriasio Depot project […],815 […].816 […].817  […].818 […].

(989)    Third, as the Transaction reduces the number of viable alternative suppliers of standalone interlocking projects in Greece, this arguably also reduces any buyer power that OSE may have had prior to the Transaction. To the extent that the customer only has a choice between homologated suppliers, that number would fall from three to two. Therefore, the Commission concludes that OSE cannot be considered to hold sufficient buyer power post-merger to constrain the Merged Entity.

(b)          Romania

(990)    In Romania, based on market share figures (by order intake) in the period 2008-2018, the Merged Entity will be the largest player with a market share of [40-50]% and the next largest identified competitor will be Thales with a market share of [20-30]%. The Notifying Party reports 'unidentified' competitors as being responsible for [30- 40]% of the market of standalone interlocking projects. However, this share is  likely to also belong to Thales as it is the other incumbent provider in Romania. There were […] contestable interlocking tenders in the period 2008-2018 and both Parties bid in […] of them. In the […], as shown in Table 34.

Table 34: Contestable tenders for standalone interlockings in Romania (2008-2018)

Source: CPL

(991)    The Notifying Party considers that each Alstom, Siemens, and Thales have an authorised interlocking in Romania and Ansaldo has a "hybrid" interlocking (namely a "relay interlocking with computerized MMI") which could be used for certain specific projects.819 The Notifying Party expects strong competition from suppliers active in the period 2008-2018 (Alstom, CAF, Mipro, Siemens and Thales).820 The Notifying Party also submits that the Romanian infrastructure manager Cai Ferate (CFR) has facilitated entry by increasing the size of projects, pointing to an ETCS roll-out that attracted bids from several suppliers not previously present in interlockings or ATP in the Romanian market including Alstom, Bombardier and Ansaldo.

(992)    In their response to the Statement of Objections, the Parties repeat some of their arguments already made in the Form CO and response to the Article 6(1)(c) decision. The Parties submit, in particular, that the Transaction does not give rise to any competition concerns because the Parties are not close competitors as evidenced by the bidding data that instead shows the competitive constraint of rival bidders, in particular Thales, AZD, CAF and Mipro, with Thales being, according to the Parties, a "closer competitor to Siemens than Alstom".821 The Parties also submit that the internal documents of the Parties quoted in the Statement of Objections do not confirm any closeness of competition between the Parties, and furthermore argues that the standalone interlockings market in Romania will have "sufficient alternative suppliers" for the customer CFR to exert buyer power, namely Thales, AZD, Mipro, but also Ansaldo and Bombardier. According to the Parties, the customer is likely to continue tendering small interlockings projects to replace old relay interlockings and in the absence of a requirement to have a homologated product to participate in the bidding, new suppliers may use the opportunity of small interlocking tenders to homologate its interlockings to then be able to compete for the larger ETCS re- signalling projects.822

(993)    The Commission, however, considers that the Transaction would cause a significant impediment to effective competition in standalone interlockings projects in Romania for the following reasons:

(994)    First, Alstom exerts a significant competitive constraint in view of its tender participation in projects involving interlockings (Alstom was present in […] but […]).823 The Transaction would eliminate this constraint. The only player with comparable bidding activity, in addition to Thales (present in […] standalone interlocking tenders), was AZD, present […]. The other competitors, CAF and  Mipro, were less active bidders, participating […] standalone interlocking tenders, respectively. As submitted by the Notifying Party, […] participated in standalone interlocking projects prior to 2012 and, in fact, the first of the five standalone interlockings projects tendered in the 2008-2018 period falls within this first period when only Siemens and Thales competed. But, for the remaining […] tenders, Alstom has bid […], thus exerting a competitive constraint on the incumbents Siemens and Thales that would be eliminated as a result of the Transaction.

(995)    Second, the Parties are close competitors in Romania, and are perceived as such by the Parties themselves.

(996)    […].  For  example,  […].  Thales  was  the  ultimate  winner  of  that  project.    […].

Contrary to what is argued by the Notifying Party, […].824

(997)    […],825 […].826 […].827 In their response to the Statement of Objections, the Parties submit that this document does not show that the Parties are "closer competitors" to each other than rivals, and refers to Siemens’ internal document for the Logoj-Ilia […].828 What the Notifying Party fails to observe, however, is that when ranking its rivals for the Logoj-Ilia project, […]. This shows again that the Parties are perceived by each other as close competitors.

(998)    In relation to the Station Videle project, Alstom also addresses the suitability of its solution to the customer requirements for the project in its gap analysis by stating  that […].829

(999)    Third, as the Transaction reduces the number of viable alternative suppliers of standalone interlocking projects in Romania, this arguably also reduces any buyer power that CFR may have had prior to the Transaction. To the extent that the customer opts between homologated suppliers, that number would fall from three to two. While the Notifying Party has claimed that there are "at least five suppliers"830 for the infrastructure manager to choose from, only three are homologated and the infrastructure manager has a track record of only procuring interlockings from one of the three homologated suppliers.831 Therefore, the Commission concludes that CFR cannot be considered to hold sufficient bargaining power post-merger to constrain  the Merged Entity.

(B.iii)    Other countries where a competitive constraint is exercised

(1000)  In  addition to countries in  which affected markets arise and those in which the  Parties have actual bidding overlaps, the Commission takes the view that the Transaction could also lead to unilateral horizontal effects in countries in which one of the Parties has actual sales or has participated in bids, while the other or both Parties are potential bidders as a result of homologated products (see recitals (1003)- (1004) concerning Belgium).

(1001) This group of countries would also include those in which the Parties may not have participated in any standalone interlocking tenders, or have a homologated product, but have offered interlocking technology in the context of a re-signalling project, and are thus potential bidders that exert a competitive constraint (see recitals (1014)- (1015), and (1018)-(1022) concerning Hungary), in a similar manner as the Parties have argued in relation to Ansaldo in the UK following its win of a re-signalling tender for the Ferriby-Gilberdyke line in 2016.832

(1002) The Commission considers that the Transaction will lead to unilateral horizontal effects in two such markets, namely Belgium and Hungary. The market size and competitors active on those markets are included in Table 35:

Table 35: Standalone interlocking projects, market shares (order intake, 2008-2018)

Source: Notifying Parties response to the Commission's request for information RFI 79, Annex 5.3.

(a)                    Belgium

(1003) In Belgium, based on market share figures (by order intake) in the period 2008-2018, the Merged Entity will be dominant with a market share of [90-100]%, based on Alstom's share alone. Alstom is the only supplier that has provided standalone interlocking projects in Belgium: it was awarded a framework contract in the 1990s and an additional non-contestable framework contract in 2015.833

(1004) Siemens has a homologated interlocking in Belgium in connection with the ETCS re- signalling project it was awarded in 2015.834 The Commission is not aware of any other suppliers that have a homologated interlocking in Belgium.835

(1005) The Notifying Party submits that the Transaction will not give rise to competition concerns on the market for standalone interlocking projects in Belgium as the Parties do not compete against each other in Belgium. Alstom was awarded in 2015 […].

The Notifying Party explains that Siemens has only supplied interlockings as part of the ETCS re-signalling project it was awarded by Infrabel in 2015. The Notifying Party submits that the infrastructure manager supported entry by Siemens by  allowing it to homologate its interlocking after the contract had been awarded and this was one of the steps taken by Infrabel to attract participants to its re-signalling tender. The Notifying Party submits that the Parties will not be able to exert any market power given the characteristics of the Belgian interlockings market, namely that Infrabel has the ability to introduce new suppliers if it wishes to do so; the  Parties have no incentive to take steps that would risk antagonising their only customer; and finally, as Infrabel is a member of the EULYNX consortium and could introduce EULYNX interfaces for future interlockings projects, this could facilitate the introduction of new suppliers and facilitate Infrabel to purchase and install interlocking equipment itself. The Merged Entity will, according to the Parties, be constrained by the threat of new entry and the threat of exclusion by the infrastructure manager from its future projects.836

(1006) In their response to the Statement of Objections, the Parties repeat their arguments already made in the Form CO and response to the Article 6(1)(c) decision. The Parties submit, in particular, that the Statement of Objections fails to recognise Infrabel’s ability to, and track record of, introducing new suppliers if it wishes to do so, pinpointing to the homologation of Siemens as an interlockings supplier in Belgium as a "very successful effort" by Infrabel to "ensure competitive outcomes in consequent tenders".837

(1007) The Commission, however, considers that the Transaction would cause a significant impediment to effective competition in the market for standalone interlocking projects in Belgium. More specifically, Siemens exercises a competitive  constraint on Alstom as the only other supplier with a homologated interlocking in Belgium. This constraint would be eliminated by the Transaction.

(1008) First, the Parties are close competitors and thus exert a significant competitive constraint on one another, as perceived by the customer and the Parties themselves.

(1009) In its response to the market investigation, […] confirms that the Parties are close competitors by stating as follows: "Alstom and Siemens are close competitors. In tenders for which they did not bid together but separately, competition was fierce on all grounds".838 In relation to interlockings specifically, […] submits that until 2014 "Alstom has been the almost exclusive supplier of interlocking systems", namely until Siemens became an interlocking supplier in its own right in Belgium through its participation to the tender for and win of the re-signalling project awarded to it in 2015.839

(1010) The Parties' internal documents confirm that the Parties are  close  competitors.  […].840

(1011) Second, the result of the market investigation does not support the Notifying Party's view that Infrabel has sufficient buyer power to counter any price increase by the

Merged Entity. To the extent that the infrastructure manager can only choose between homologated suppliers, the Transaction would leave only one option available to it, namely the Merged Entity.

(1012) While the Notifying Party argues that Infrabel is able to introduce new suppliers and had previously done so, this is not supported by the evidence in the case file. The Commission recognises that […] that it allows tender participants to seek authorisation for their signalling solutions following the award of the contract being tendered and has done so in the context of the 2015 re-signalling project with the aim of generating wider interest in its tender among signalling suppliers.841

(1013)  As submitted by the Notifying Party, Infrabel’s strategy may have made it possible  for Siemens to win the re-signalling contract and thereby become a homologated supplier of interlockings in Belgium. This experience does not, however, show that Infrabel will be able to attract new entry post-Transaction "if it wishes to do so", as suggested by the Parties.842 In fact, in the 2015 re-signalling tender, the  "track record" that the Parties refer to (in their response to the Statement of Objections843) shows that despite generating interest in the re-signalling tender from other signalling players, namely Ansaldo, Thales and Bombardier, it was only Alstom and Siemens that ultimately were able to submit conforming offers. Also, by awarding the contract to Siemens, Infrabel did not introduce or select a new player in mainline signalling in Belgium, but instead […].844 […].845 Infrabel’s allegedly "successful effort to ensure competitive outcomes in consequent tenders"846 by awarding the 2015 re-signalling contract to Siemens, therefore would be short lived as the Transaction would remove such competition from future tenders.

(b)                   Hungary

(1014) In Hungary, based on market share figures (by order intake) in the period 2008-2018, the Merged Entity will have a market share of [30-40]%, based on Siemens' share alone.

(1015) There were eight contestable standalone interlocking projects in  Hungary  in  the period 2008-2018. Siemens bid in […]. There were […]. As far as the Commission is aware, Siemens and Thales are the only suppliers with a homologated interlocking in Hungary.847

(1016) In their response to the Statement of Objections, the Parties submit that the  Transaction does not give rise to any competition concerns in Hungary as Alstom has no history of bidding in standalone interlockings projects in the country and has  never been a "credible potential entrant into the ETCS wayside market in Hungary" as it has bid in […] of the […] ETCS wayside ATP re-signalling projects between 2012-2018, […].848(1017) The Commission, however, considers that the Transaction would cause a significant impediment to effective competition in the market for standalone interlocking projects in Hungary in view of the elimination of the competitive constraint exerted by Alstom.

(1018)    […].

(1019) First, while Alstom […], it is an active mainline signalling supplier for contracts tendered by customers in Hungary,849 in particular it has participated in […] tenders involving interlocking technology, […].

(1020) The bidding data shows that there are very few actual bidders for mainline signalling projects in Hungary, this is true both for wayside signalling projects in general and wayside signalling projects involving interlockings, where […], have participated in tenders. In standalone interlocking projects, the only bidders are […]. For re- signalling projects involving an interlocking component, also […] tenders in the relevant period. Based on the bidding data, […].

(1021) Alstom is therefore […]. Alstom is therefore […] competitive constraint that the […] established players in standalone interlockings market in Hungary face, and this constraint would be eliminated by the Transaction.

(1022) Second, while the Notifying Party […], this is not supported by the facts in  the  market. Alstom is, after all, one of only a few mainline signalling suppliers that has a proven ability to bid and win interlocking projects in countries that are new to it in the EEA. The Transaction would remove this competitive threat. In fact, and in addition to Thales that already has an interlocking presence in Hungary, only Bombardier and to a lesser degree Ansaldo have shown an ability to enter new countries for standalone interlocking projects in the EEA to the same degree as the Parties. Based on the bidding data submitted by the Parties […].

(1023) Third, the Commission considers that any potential buyer power of the infrastructure manager in Hungary would be insufficient to overcome the loss of competition from the Transaction given the small number of suppliers who present potential bidding constraints for standalone interlocking projects in Hungary and based on the small number of actual bidders (namely […]) that the infrastructure manager has so far been able to attract for standalone interlocking projects.

(C)                                     Entry and expansion by Asian suppliers

(1024) In relation to the potential entry of Asian players, and in particular CRSC, in the markets for standalone interlockings in the various national markets, the Commission's view is that entry is unlikely in the foreseeable future. To date CRSC has not been awarded any contract nor participated in any mainline signalling tenders anywhere in the EEA and contacts between CRSC and mainline signalling customers have been scarce so far. Only 18% of infrastructure managers that responded to the market investigation have had contacts with CRSC.850 Mainline signalling customers and competitors consider it unlikely that CRSC enters the markets in the EEA in the next five years. None of the competitors who replied to the Phase I market investigation considers that Asian suppliers would enter in the next five years or that CRSC will be able to submit a credible bid. All competitors who responded also stated that it will take CRSC more than five years to become a credible mainline signalling player in the EEA.851 A customer […] points that "Asian players would not be shortlisted for the time being even if they were to place bids in […]'s tenders as they are considered "high risk": Asian players are no[t] represented/members in UNISIG".852

(1025) Furthermore, mainline signalling systems (including interlockings) are of critical importance as they ensure the safety of railway operations.853 The prospect of a Chinese player such as CRSC being awarded a significant signalling contract could also raise national security concerns among customers, namely the state-owned railway infrastructure managers that may be reluctant to do so. This is confirmed by […] that explains as follows: "Sourcing signalling solutions from CRSC raises also national security issues, which would dissuade Infrabel from procuring from CRSC".854

(1026) As a result, CRSC and other Asian players will unlikely exert  a  competitive  constraint on the Merged Entity in tenders for standalone interlocking projects in the various national standalone interlocking markets.

(1027) Therefore, for the reasons stated above, the Commission considers that any potential entry of Chinese suppliers would not be enough to overcome the significant impediment to effective competition that would result from the Transaction.

(D)                                    Countervailing buyer power

(1028) In addition to what has been stated in relation to each national market for standalone interlockings, and contrary to the Parties' response to the Statement of Objection, the Commission considers, more generally, that infrastructure managers lack sufficient buyer power to overcome the reduction in competition resulting from  the Transaction.

(1029) First, the bidding data shows that for each of the countries for which competition concerns are identified, there are limited number of bidders in the contestable tenders that have been organised in the 2008-2018 period. The elimination of one of the competitors will reduce the available options to the customer, thus reducing the customers' countervailing power. The Parties suggest that the limited number of suppliers is a choice of the customer itself: "a reduced pool of suppliers is typically due to decisions made by the infrastructure manager rather than a lack of alternative options" and "most infrastructure managers prefer to focus on two or three suppliers, instead of working with a larger number of competitors, as this facilitates management of the network".855 Whatever the customer’s preference, there is nothing to suggest that post-Transaction, in each of the relevant countries, the  customer would be able to easily turn to a wider pool of potential suppliers if it so wished. It needs to be borne in mind that in six out of the eight countries assessed in this section the Parties already have a homologated product, which has required significant time and cost of each of the Parties. The Transaction would eliminate one of the Parties and would place those homologated products in single hands, namely those of the

Merged Entity. Any attempts by the customer to switch to a new supplier post- Transaction which would have a comparable presence as each of the Parties had pre- Transaction, including a homologated product, would be difficult and require significant investments and time.

(1030) Second, the market investigation confirms that while some strategies are available to customers to encourage entry generally, customers face limitations to sponsoring entry for interlocking projects. These limitations reduce any buyer power customers may otherwise have had. The complexity of interlocking projects is one factor that restricts customers from sponsoring entry, in addition to time constraints. […] states that "For less complex projects (i.e., not involving interlockings) this strategy [of relaxing the requirements for authorisation (e.g., by allowing participants to seek authorisation following the award of contract] has seen some success. For interlockings, however, there have been two relatively small-scale examples of entry in recent years […]" and goes on to state that in relation to the example provided by the Notifying Party, namely the sponsorship of Ansaldo […], this represents only […]which are otherwise supplied by the Parties (or their predecessors).856

(1031) Third, the market investigation does not clearly conclude that it is possible for customers to encourage entry into interlocking projects by increasing the size of the project. For example, […] notes that "bigger projects implyies [sic] less competence as big companies make it impossible for Little ones to play".857

(E)                                     Conclusion

(1032) For the reasons set out in sections 6.3.2.4 (B)-(D), and in light of the results of the investigation, the Commission considers that the Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects, in relation to standalone interlocking projects in Belgium, Croatia, Greece, Hungary, Portugal, Romania, Spain, and the UK.

6.3.2.5.      ETCS ATP wayside overlay projects (standalone)

(A)                                    The Notifying Party's views

(1033) The Notifying Party argues that markets are national and there are  a  significant number of other actual and potential competitors in each of those national markets  for ETCS ATP wayside projects, with the Parties posing no greater constraint as potential competitors to each other than any other potential competitor. In addition, the other potential entrants in these markets will continue to exert significant constraints.858 In the Parties' view, customers in all affected national markets have sufficient competitive alternatives available, as demand is concentrated in the hands of a small number of sophisticated monopsonistic purchasers.859

(1034) In the Notifying Party's view, ETCS creates an opportunity for new suppliers to  deliver wayside ATP systems across the EEA. As infrastructure managers install ETCS wayside systems, competitors from across the EEA who have developed  such systems can compete to deliver them, although each supplier must still address any potential remaining interface issues and authorisation requirements which, in the Notifying Party's view, are not however a barrier to a new supplier.860

(1035) In their response to the Article 6(1)(c) decision, the Parties argue  that  the  Commission overlooks the competitive conditions in the market for ETCS ATP wayside projects, in particular (i) the competitive constraints imposed by other competitors both in affected and potential relevant markets, and (ii) the Parties face significant buyer power from sophisticated customers and the threat of entry is a credible constraint for the Parties.861

(1036) The Notifying Party further considers, in relation to ETCS ATP wayside overlay tenders that Infrabel strategically designed tender K320 in Belgium in such a way as to encourage bid participation by players other than Alstom despite the fact they would first have to homologate an interlocking before being able to execute the project.862

(1037)  The Parties also submit in relation to the Article 6(1)(c) decision that the assessment  of market share and bidding data at EEA level is flawed because: (i) historic market shares should not be the basis for the Commission's economic analysis, (ii) the bidding analysis should also take into account the threat imposed by other competitors actively bidding across the EEA, for example, there are 7 suppliers actively bidding for projects in the EEA, and (iii) Thales' significant competitive constraint on the Parties is disregarded.863

(1038)  In their response to the Statement of Objections, the Parties reiterate the arguments  set out in the Form CO and in their response to the Article 6(1)(c) Decision. They further submit that (i) a combined market share of [30-40]% (EEA) is moderate and not indicative of a dominant position,864 (ii) as the Parties do not have full visibility  of their competitors’ market shares (i.e. those "unidentified"), the market shares of competitors are underestimated (especially those prior to 2012). According to the Parties, if these "unidentified" shares are allocated proportionally to the orders the Parties have identified, the resulting shares are much higher.865 The Parties further state that the assessment based on contestable projects only is biased against the Parties866 and the bidding analysis does not support that Siemens and Alstom are particularly close competitors because […], the analysis based on the geographic footprint of their bidding activities is not relevant to assess closeness of competition, and the case file does not contain any evidence that indicates that the Parties have  any greater incentive than other players to expand their geographic scope.867 Further, according to the Parties, the bidding analysis disregards the competitive constraint imposed by other competitors that are bidding across the EEA;868  the responses to the market investigation are inconclusive as regards closeness of competition;869 the Parties’ internal documents quoted in the Statement of Objections are highly  selective and have been misinterpreted;870 the assessment of entry is contradicted by evidence in the case file,871 and customers have proven ability to attract new  suppliers (by bundling projects, sponsoring entry and providing interfacing information).872

(B)   The Commission's assessment - EEA level (B.i)              Parties and their competitors

(1039) Siemens' ETCS ATP products are Trainguard 100, Trainguard 200 and Trainguard 300, for Level 1, Level 2 and Level 3 applications respectively. Alstom's ETCS ATP platform is the ATLAS product line, of which it currently markets A500 and A400.

(1040) Bombardier's offering comprises INTERFLO 250 (ETCS L1), INTERFLO  450  (ETCS L2) and INTERFLO 550 (ETCS L3). Thales supplies AlTrac 6413 ETCS  TSS (L1), AlTrack 64821 RBC (RBC solution for L2), AlTrack 6415 OBS (integrated systems for ETCS L1 and L2). Ansaldo and CAF (Auriga L1 and Auriga L2) also provide ETCS ATP wayside solutions.

(B.ii)      Market shares

(1041) At EEA level, based on market share figures (by order intake) in the period 2008- 2018, the Merged Entity will become the market leader, with a combined market share of [30-40]% (Siemens: [20-30]%; Alstom: [10-20]%). Thales and Ansaldo will be distant competitors and the remaining suppliers will have significantly smaller market shares, all below [5-10]%.

Table 36: ETCS ATP wayside projects (overlay only), market shares, 2008-2018, order intake (by value)

Source: Notifying Parties' response to the Commission's request for information RFI 131, Annex Q1

(1042) While the Commission acknowledges that the competitors' market share may be understated in Table 36, as argued by the Parties in their response to the Statement of Objections, the Commission considers that even if the "unidentified" market shares were to be attributed following the Notifying Party's approach (which attributes the "unidentified" market shares in the same proportion as the "identified" market shares of the Parties’ competitors), the resulting picture of the market would not substantially change. Thales and Ansaldo would remain at a distance of the   Merged

Entity ([10-20]% against [30-40]%) and other rivals such as AZD or Bombardier would be much smaller ([10-20]% and [10-20]% respectively). The Commission also notes that if market shares for the 2012-2018 are instead used, as provided by the Notifying Party,873 the share of "unidentified" order intake is much lower  ([10- 20]%), and the resulting market shares of competitors (without attributing this [10- 20]% market) share are [10-20]% for Ansaldo, [10-20]% for Thales, [5-10]% for AZD and [5-10]% for Bombardier, therefore much closer to the situation depicted in Table 36.

(1043) If only the contestable projects in the period 2008-2018 are considered, the market share of the Parties and their competitors would be higher, as shown in Table 15. The Parties would be dominant on the market with a combined market share of [50-60]% (Siemens: [30-40]%; Alstom: [20-30]%) and the next closest competitor, Thales, would be significantly smaller with a share of [20-30]%. Bombardier would have a market share of [5-10]% and the remainder would be in the single digits. The Commission acknowledges that these market shares for contestable projects  are based only on tenders known to the Parties and could therefore overestimate the Parties' market shares to the extent that it can be presumed that all those contestable tenders in which at least one of the Parties participated would be included in the sample used to calculate the contestable market share figures (as such tenders would certainly be known to at least the Party that participated in the tender) while the possibility cannot be excluded, however unlikely, that one or more contestable tenders for ETCS overlay projects in the EEA in which neither of the Parties participated and neither of the Parties had knowledge of, would have been omitted from the sample used to calculate the market share figures. In any event, the Commission’s conclusion in recital (1101) would not change, whether the Parties’ market share is expressed in terms of contestable projects only or includes also non- contestable ones, for the reasons set out in recitals (1041)-(1100).

Table 37: ETCS ATP wayside contestable projects (overlay only), market shares, 2008-2018, order intake (by value)

Source: Commission based on CPL

(B.iii)     Closeness of competition

(a)                    The market investigation confirms the Parties are close competitors

(1044) The results of the market investigation confirm that customers perceive Siemens and Alstom generally as close competitors. Siemens was mentioned most frequently by responding customers as the best alternative to Alstom, while Alstom was perceived to be the second best alternative to Siemens after Thales in terms  of  products, product ranges, competitiveness, quality, and innovation.874

(1045) […], rates the ETCS ATP wayside solutions of Siemens and Alstom identically in terms of technology/level of innovation, ability to adapt to customer requirements, reputation, reliability and safety, price, customer service, product breadth, project management and integration capability as well as overall.875

(1046) One customer, [...], explains that "Siemens, Alstom and Thales are significantly more advanced than other signalling players, including Bombardier and Ansaldo STS".876

(1047) When asked whether the participation of Alstom in mainline signalling tenders had  any impact on the customer's ability to obtain better conditions from Siemens, 27% of customers stated that Alstom's participation in a tender had such an effect, and similarly 33% of respondents considered that the tender participation of Siemens had allowed to obtain better conditions from Alstom.877

(1048) [...] considers that "Siemens and Alstom are very close competitors in  terms  of product offering. They can both be considered as incumbent companies".878 [...] also states that no other competitor comes close to the Parties: "Hitachi-Ansaldo, in its bid for the 2014 ETCS L2/IL project, seemed technically less capable than Siemens and Alstom…".879 While [...]'s observation refers to the ETCS re-signalling component of the project, considering the added complexity involved in addressing ETCS overlay projects, including research and innovation capabilities, it is not likely that Ansaldo would be considered as close competitor as the Parties are with each other when addressing the ETCS overlay market.

(1049) Moreover, the market investigation shows that the participation of  Siemens  in  tenders in which Alstom bids has a positive effect on […]'s ability to obtain better conditions from Alstom. No other supplier, apart from Siemens, has the same constraining effect on Alstom.880

(1050) […] states that the Transaction will "eliminate one competitor in the fields of ETCS, OBU and trains. The Merged Entity will likely have significant market power. In our view, there is a credible risk that the Merged Entity could exploit this strong market position in the future".881 […] also states in relation to ETCS wayside ATP that "[t]here is a limited range of suppliers for balises for ETCS technology. Other suppliers buy these products externally. The proposed [m]erger of Siemens and Alstom will reduce the number of balise manufacturers".882

(1051) The deployment of ETCS wayside signalling is ongoing on the German mainline rail network, but yet only limited deployment of ETCS has occurred. […] contends that […].883 […]According to the plans by Deutsche Bahn, there will be significant ETCS roll-out in coming years. The infrastructure managed has "outlined plans for the deployment of ETCS across its rail network, including the full rollout of the technology on the 1450km TEN-T Rhine-Alpine corridor and more than half of its cross-border lines by 2022".884  In view of […] the published plans by Deutsche Bahn, significant ETCS wayside projects are therefore likely to be tendered shortly. According to the National Implementation Plan,885 ETCS should be deployed by 2023 on more than 1800 kilometres of track, from the current roughly 200 kilometres.886  These plans are taking shape.887

(1052) As explained […], Siemens and Alstom are among the suppliers of ETCS wayside ATP projects in Germany […] together with Thales, Bombardier and Ansaldo.888 In Germany, the competitive constraint exerted by Alstom relates particularly to the ETCS ATP market, in which Alstom is together with Siemens a leading innovator.889 In the Commission’s view, this statement highlights the Parties’ role as leading innovators in ETCS ATP projects.

(1053)  As explained by […], the suppliers of mainline signalling systems closest to Alstom  in terms of product offering and technical capabilities are Siemens and Thales, whereas the closest suppliers to Siemens are Thales and Alstom.890 […] also ranks Siemens (and Thales) as the best alternative to Alstom in terms of products, product ranges, competitiveness, quality and innovation, while Alstom is ranked  second (after Thales) as the best alternative to Siemens in relation to the same factors.891

(1054) In the UK, the market investigation shows that the Parties are each other's closest competitors. […] submits that "no other potential competitor [apart from the Parties] has… a sizeable GB workforce and GB base, along with the requisite scale of operations and established geographical presence across GB, to provide sales, R&D planning, design, project management, IT and other services as part of an end-to-end solution".892 […] also considers that no other supplier has access to the necessary interoperability information to ensure interoperability with the Parties' installed base, nor do they have […].

(1055) The market investigation confirms that even at the level of the framework tender, the merger will eliminate an important competitor for the next tender period, CP 6,  which can expect to see more ETCS work. […] submits that "a number of third party competitors ([…]) bid but failed in the competition against Siemens and Alstom in CP5" for reasons that included the failure to have approved products in the UK.893

(1056) […] further explains that "…As a result, Siemens and Alstom are moving further  ahead of competitors in conventional signalling". The problem, […]is that until conventional signalling is completely phased out, the Siemens ETCS wayside ATP, in particular RBCs, will only work with the Siemens interlockings (and the same is true for Alstom). To the extent that another supplier may be able to obtain the relevant information in order to interface its system with the Parties' interlockings […] that "access to the intellectual property, design and compatibility specifications necessary to ensure interoperability with the merging parties' installed base at the fringes, where the new project meets existing infrastructure".894

(b)                   The Parties' participation in tenders confirms they are close competitors

(1057)  First, the Parties meet frequently in tenders for ETCS ATP wayside overlay projects  in the EEA and thereby exercise a competitive restraint on one another. Of the […] contestable895 tenders for ETCS ATP wayside overlay projects in 2008-2018 in the EEA, the Parties met each other on average in […]. The only other competitor that the Parties meet […].

(1058) Second, Siemens, together with Thales, was the most frequent rival bidder […]. Alstom was among the most frequent bidders […] have submitted more frequently competing bids for Siemens than Alstom.

(1059) Third, the Parties are among the most frequent competitors in tenders for ETCS ATP wayside overlay projects in the EEA. Siemens […] and Alstom […], when looking at the […] contestable896 tenders for ETCS ATP wayside overlay projects in 2008-2018 in the EEA. Figure 18 shows the number of ETCS ATP wayside overlay tenders that the Parties and their competitors bid in during the period 2008-2018.

Figure 18: Bidding in contestable ETCS ATP wayside overlay projects (2008-2018)

[…]

Source: CPL

(1060) Fourth, the geographic spread of the Parties' bidding activity in the EEA is matched only by Thales showing the Parties have the ability to bid for ETCS ATP overlay projects across the EEA. The Parties bid in more ETCS ATP wayside overlay tenders and in more European countries than almost all of their competitors over the period 2008-2018. The Parties together with Thales are […] suppliers bidding for ETCS ATP wayside overlay projects in at least […] countries in the EEA (see

(1061) Table 38). Ansaldo and Bombardier have bid in […] countries. CAF and AZD have […] countries each. No other suppliers have participated in ETCS ATP wayside overlay tenders in the EEA in 2008-2018, according to the information available to the Commission.(1062) Table 38 shows the countries in which the different suppliers participated in ETCS ATP wayside overlay tenders in 2008-2018.

(1063) The Commission considers that the Parties' highly geographically diverse bidding activity may be an indication of their enhanced ability, relative to competitors, to bid for ETCS ATP wayside overlay projects in a greater number of countries. This is particularly relevant as the roll out of ETCS technology develops and new countries tender for ETCS projects. The Commission's view is supported by the results of the bidding data, which shows that the Parties are among the most successful players in challenging incumbent suppliers in the EEA. […]. As a result, the Commission's view is that the Parties are among the most capable of suppliers who can bid and thereby exert a competitive constraint in tenders outside of their home countries.

(1064) Fifth, in addition to the Parties' proven ability to bid for projects and thereby exert a competitive constraint in a greater number of countries than almost all of their competitors, the Parties' internal documents show […]. For the reasons stated, the Commission considers that the Parties are among few competitors with the proven ability to […].

(1065) For example, an Alstom internal document […].897 […]898 […]. This shows  that Alstom is among the capable providers of expanding to market where it is not present, including a major European market such as Germany.

(1066) Siemens also shows […]899 […]. Post-Transaction, any competitive bidding competition between Siemens and Alstom in Germany that would have otherwise existed by virtue of their aggressive expansion plans would be lost. The same applies to those countries where Siemens is planning to bid and Alstom is already present.

(1067) Sixth, the only other competitors who, based on the bidding data,  have  proved to  have the ability to bid across the EEA – even though to a lesser degree than the Parties – are Bombardier and Ansaldo. Smaller suppliers are likely to lack the financial and other resources required to geographically expand the scope of their bidding activity across the EEA in the near future so as to exert a significant bidding constraint on the Merged Entity. The Parties themselves acknowledge that "acquisition by a large international player may well give access to additional financial and other resources that can support such bidding investments".900 The Notifying Party later clarified in its reply to a request for information that this quote related to the specific example where Ansaldo faced financial difficulties, and was acquired by Hitachi.901 Therefore, it would appear even Ansaldo before its  acquisition and being an already relatively large player, faced financial difficulties in competing. The market investigation shows that a company's financial resources play a key role in its ability to bid for tenders. [...] notes that its "capacity to bid is directly linked to [...] size. The bidding budget of a company is directly proportional to revenues".902

(1068) In relation to the Parties' arguments that the Statement of Objections does not reflect the strategic moves of CAF and AZD Praha to expand their geographic scope of their activities,903 the Commission considers that this does not undermine the statements in recital (1067), in particular because, as bidding data confirm, and even taking into account the strategic moves to enter new countries (eventually including those mentioned in footnote 1022 if those were to be confirmed), CAF and AZD have a much smaller presence in the EEA than the Parties, Thales, Bombardier and Ansaldo, both in number of bids and wins as well in the geographic scope of its activities.

(1069) Seventh, the Parties are among the top  four suppliers most likely to win an ETCS  ATP wayside overlay tender. The bidding data shows that Siemens was the second most frequent winner with […]%, behind Thales with […]%, followed by Alstom and Bombardier with each […]%. Value-weighted winning rates show that Siemens is the most successful bidder with a value-weighted winning rate of […]%, followed by Thales with […]% and by Alstom as third most successful bidder in terms of value with […]% winning rate. When Alstom loses a tender, the most likely supplier to win is Thales followed by Siemens: of the […] contestable tenders lost by Alstom, […] were won by Siemens and […] were won by Thales. The most likely supplier to win when Siemens loses is Thales: of the […] contestable tenders that Siemens lost, Thales won […] and Bombardier and Alstom won […] and […] respectively. In that respect, the Commission notes that its finding that the Parties are close competitors does not necessarily imply that the Parties are each other's closest competitors, as the Parties appear to argue in their response to the Statement of Objections.904

(1070) The Parties argue that the Commission misrepresents the bidding and winning  statistics by not including bids and wins in consortia.905 In that respect, the Commission highlights that (i) computing bids and wins excluding consortia  provides a more reliable picture of the competitive strength of suppliers standalone, given that a win by a consortium may be due to the strength of the other supplier, not the Parties, therefore distorting the analysis, (ii) even if these bids and wins in consortia are computed, the overall picture does not changes substantially, as they represent a small share of all bids ([…] ETCS ATP wayside overlay projects).

Table 38: Countries in which the Parties and competitors have bid for ETCS ATP wayside overlay projects (2008-2018)

Source: CPL, Annex 105 Q2.2.

(1071) On the basis of the bidding data, the Commission considers that Siemens and Alstom are close competitors in ETCS ATP wayside overlay projects. The frequent direct competition between the Parties in […], in conjunction with the observed facts of winning together the vast majority of tenders and a significant share of tenders in which the other Party submitted a bid, suggest that the Parties exercise a significant competitive constraint on each other.

(c)                    The Parties' internal documents confirm they are close competitors

(1072) The Parties' internal documents  confirm  that they  consider themselves among the  five major signalling suppliers for ETCS ATP wayside projects. The other competitors identified in the internal documents as major ETCS suppliers are Thales, Bombardier and Ansaldo.

(1073)    […].907 […].

(1074)    […].908 […].909

(1075) The Commission's view (based on the bidding data) that the Parties are close competitors  is  supported  by internal  documents.  […]910   […].  Alstom’s document

also show […]. Although these documents refer to the Parties' and their competitors' relative global positioning, the Commission considers that given that the EEA represents the largest market for ETCS ATP wayside projects globally, these global assessments are relevant to assessing the Parties' activities also in Europe. Regarding the Parties' arguments set out in their response to the Statement of Objections in relation to this document,911 the Commission acknowledges that the document also refers to the certain competitors (such as CAF, AZD or Mermec), but the statements cited by the Parties largely reflect that these players have only a meaningful presence in their home countries with a small geographic footprint in relation to the Parties ([…]).

Figure 19: Competitive positioning - ERTMS trackside L1 and L2

[…]

Source: […]

(1076) The same document (slide 54) shows […]. According to the CPL, AZD has participated in Level 1 tenders in Greece in 2014. However, the Commission is not aware of any deployment of a Level 1 solution. Therefore, these smaller competitors do not have the full portfolio of ETCS ATP solutions and cannot be a constraint to the Parties in all tenders. Furthermore, some of them have only recently homologated ETCS ATP Level 2 solutions, and therefore suffer from considerably less experience than the Parties in deploying ETCS ATP projects.

(1077) On the other hand, Siemens' strength in ETCS Level 1 is confirmed by an internal document in which […],912  […],913 […].

(1078) Internal documents also confirm the closeness of Siemens and Alstom  on  the  Austrian ETCS wayside ATP market. In the internal Siemens documents drawn up in connection […].914  Similarly, […].915

(1079) In relation to the tender in Belgium referred to as K320 (ETCS Level 1 and 2 overlay solution, in addition to the ETCS Level 2 re-signalling solution comprised in the  same tender),916  a Siemens internal document […].917

(1080) In the internal documents prepared during the tendering for the 2015 ETCS Level 2 framework contract, Siemens identified its main competitors as […].918 Likewise, […].919

(1081)    As regards Spain, an Alstom's internal document "[…]920  […]921 […].

(1082) In the internal documents prepared during the tendering for the 2012 ETCS Level 1 project (TEN-T Corridor D) in Slovenia, Siemens assessed […].922 Similarly Alstom assessed […].923

(1083) In summary, the bidding data, the market investigation and the Parties' internal documents demonstate that Siemens and Alstom are close competitors in the market for ETCS ATP overlay projects and that its presence in this market has been an important driver of competition. The frequent direct competition between the Parties in […]% of the contestable tenders in the period 2008-2018, in conjunction with the observed facts of the Parties winning together a substantial share of  tenders ([…]) and participating in a significant share of tenders in which the other Party submitted  a bid (Alstom participates in […] tenders in which Siemens bid, Siemens participates in […] tenders in which Alstom bids), suggest that the Parties exercise a significant competitive constraint on each other. Therefore, the Transaction will remove a significant competitive constraint from the market.

(B.iv)     Entry and expansion of competition

(a)     Entry by Chinese suppliers and other Asian players is not likely in the near future (1084)       In relation to the potential entry of CRSC and other Asian players such as Nippon

Signalling and Hyundai Rotem, as discussed in recitals (1024)-(1027), the Commission’s view is that entry into mainline signalling markets in the EEA is unlikely in the foreseeable future. Consequently, CRSC will unlikely exert a competitive constraint on the Merged Entity in tenders for ETCS ATP wayside overlay projects in the EEA.

(b)     Smaller competitors' ability to expand is limited and will likely be negatively  affected by the merger

(1085) First, the Parties, Thales, Ansaldo and Bombardier are to date the only suppliers of ETCS ATP wayside overlay projects that bid consistently across countries in the EEA. Other suppliers bid in only a few countries. AZD focusses its activities in the Czech Republic and Slovakia. CAF has only participated in tenders in Spain and Bulgaria. Therefore, the bids by AZD and CAF exert no competitive constraint on  the Parties outside of these geographies. No compelling evidence is put forward by the Notifying Party that would suggest that the situation is likely to change in  the near future post-Transaction.

(1086) This is confirmed by some customers. For example, in response to a question on whether it expects a sufficient number of bidders in future tenders post-Transaction, […] states that it is "[n]ot too sure" as the number of present suppliers is limited and will be more so following the Transaction.924 […] explains that "the four "big players", namely Siemens, Alstom, Bombardier and Thales tend to all participate in […]s tenders, especially the larger tenders".925 The acknowledgement by the Notifying Party that the Parties, as incumbent suppliers […] are expected to participate in the upcoming re-signalling tenders to be launched by […] in 2019- 2020 further indicates that the number of bidders will be reduced post-Transaction.926

(1087) The Commission reiterates, in response to the Parties' response to the Statement of Objections,927 that the fact that an incumbency advantage due to the installed base exists  does  not  undermine  the  finding  of  an  EEA-wide  market  for  ETCS  ATP wayside overlay projects, as such incumbency advantage can be surmountable as set out in Section 6.2.2.2(C.iv) and it does influence the competitive dynamics in that EEA-wide market.

(1088) Second, smaller suppliers are likely to lack the financial and other resources required  to geographically expand the scope of their bidding activity across the EEA in the near future so as to exert a significant bidding constraint on the Merged Entity. The Parties themselves acknowledge that "acquisition by a large international player  may well give access to additional financial and other resources that can support such bidding investments".928 The Notifying Party later clarified in its reply to a request for information that this quote relates to the specific example where Ansaldo faced financial difficulties, and was acquired by Hitachi.929 Nevertheless, the market investigation shows that a company's financial resources play a key role in its ability to bid for tenders. [...] notes that its "capacity to bid is directly linked to [...] size. The bidding budget of a company is directly proportional to revenues".930 The market investigation also shows that there is a link between large tenders (what internal documents of the Parties' refer to as "big tickets") and the financial resources of a bidder. In this respect, a competitor notes that "Larger projects which are cash- negative at the early stages (resources mobilization, procurement of goods, and initial developments) require a large financing capacity".931

(1089) Third, the Commission's view is that the Transaction will likely negatively affect competitors' own assessments of winning and in turn their decision to bid. A supplier will not bid unless it considers it has a real chance of winning since bidding is expensive and time intensive.932 In this regard, the Commission considers that the Merged Entity will enjoy a competitive advantage, due to the Parties' access  to legacy signalling systems and the Parties' stronger position for international corridors, which would in turn weaken competitors and significantly decrease competition (i.e., bidding by competitors) post-Transaction,

(1090) With regard to access to legacy signalling systems, the Merged Entity's footprint of legacy ATP and interlockings would significantly increase and be unmatched in relation to that of its competitors. For example, according to the data on installed  base of interlockings provided by the Notifying Party for 18 EU countries, […].933 In this regard, the Merged Entity would face lower interfacing costs for its ETCS ATP wayside projects due to its installed base of legacy ATP systems and interlockings. If data on sales of interlockings in the 2012-2017 period are considered, as submitted  by the Notifying Party, the Parties are present in […] EU countries.934

(1091) The market investigation confirms that the Merged Entity will enjoy an increased competitive advantage by reason of its greater installed base. The vast majority of competitors responding to the Phase I market investigation consider that post- Transaction the Merged Entity will have a strong competitive advantage due to its installed base of mainline signalling systems (incumbent position). Many customers also consider that the Merged Entity will have a competitive advantage due to its installed base and will be in a better position compared to its competitors, thus

mplying more market power for the supply of components, (maintenance) services and new (sub-)systems.935 For example, […] submits that "the [merged] company will have a[n] installed base enough superior than competitors" which will result in "more expensive products, less innovation, worse service […]".936

(1092) With regard to international corridors, the Parties will have joint incumbency in pairs  of neighbouring countries which may result in a strong position for international corridors through the installed conventional wayside systems in the two countries. The Transaction would potentially affect international corridors between Denmark and Germany, Germany and France, Netherlands and Belgium, Belgium and Germany, Belgium and France, Austria and Germany, Austria and Italy, and France and Spain.937 The Commission recognises that if track sections along these international corridors are tendered separately for each country, such a strong position at international corridors may not change significantly post-Transaction. However, to the extent that track sections on both sides on the border need to interface each other and if a tender includes more than one country, these joint incumbency pairs would have a detrimental effect on competition.

(1093) Finally, for the reasons stated in recitals  (1084)-(1092), the Commission considers  that any hypothetical potential entry of Chinese suppliers or the expansion by  existing smaller suppliers already bidding in the EEA would not be enough to overcome the significant impediment to effective competition resulting from the Transaction.

(B.v)      Countervailing buyer power

(1094) The Commission's view is that customers do not have a sufficient degree of buyer power to overcome the reduction in competition that will occur as a result of the Transaction.

(1095) First, the bidding data shows that for the majority of ETCS ATP wayside overlay projects, there are only two or three bidders. Therefore, any countervailing power of customers will be even more diluted post-Transaction given the even smaller pool of potential suppliers.

(1096) Second, the market investigation does not support the Notifying Party's general submission that customers support entry. Only 28% of the respondents to the market investigation reported that they had sponsored the participation of suppliers in tenders.938 Customers also point at limitations to these strategies, such  as procurement rules or safety requirements.939

(1097) For example, [...] disagrees with the Notifying Party's argument that customers can facilitate entry by tendering framework contracts for the exclusive supply of yet undefined projects over several years. [...] notes that "whether contracts are awarded as framework agreements or are tendered out on a punctual basis, does not affect entry".940

(1098) […] in fact considers that over the past 10 years, its negotiating power vis-à-vis its signalling suppliers has decreased in view of the limited market volume and small number of suppliers able to provide products that meet technical requirements,941 and therefore, a further consolidation of the supplier base is not likely to reverse that trend. As […] explains, the Transaction will have a negative impact of its activities  in the procurement of mainline signalling systems and will lead to higher prices. It further states that "Siemens is already the market leader for mainline signalling systems […]. Post-merger, […] expects negotiation power vis-a-vis customers and pressure on competitors to increase".942

(1099) The results of the market investigation do not support either the  view  that  the Spanish infrastructure manager, ADIF, has sufficient buyer power to counter any price increase by the Merged Entity. […].943

(1100) The [… ] considers, in fact, that prices for mainline signalling have been increasing over the past ten years due to the small network size and small market in […] with own "system requirements and language" and considers that due to the small size of the network it manages, "it is hard to get favourable terms" when procuring mainline signalling systems.944  The Transaction is unlikely to reverse this trend.

(1101) Third, the market investigation does not show that it is possible for customers to encourage entry into ETCS ATP wayside overlay projects by increasing the size of the project. According to customers, a strategy of bundling small signalling projects into a single larger one also shows some limitations. Although 42% of customers acknowledge having bundled single small projects into a single tender,945 some customers indicate that the larger the project, the more limited the number of suppliers participating in the tender.946 […], submits that it "noticed  […] participation is not affected by the scope and size" of projects947 […] notes that "bigger projects [imply] less [competition] as big companies make it impossible for [l]ittle ones to play" and […] suggests that the "strategy [to increase size of projects]is useful [to encourage market entry of non-incumbent suppliers] in our ERTMS projects but not within the traditional developments where separate projects are used".948 While [...] recognises that it has in the past bundled interlocking, OCS and ETCS together with a view to encouraging participation, [...] does not identify strategies that encourage entry into the interlocking market in circumstances when an ETCS solution is not also required.949(1102) As regards other measures, in the Phase II market investigation only 30% of respondents stated that they could, for some or all projects, encourage market entry by facilitating interfacing with the installed technology. For example, […]950

(C)                                     Conclusion

(1103) For the reasons set out in section 6.3.2.5 (B), and in light of the results of the investigation, the Commission considers that the Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects, in relation to ETCS ATP wayside overlay projects in the EEA.

6.3.2.6.      ETCS ATP wayside re-signalling projects (bundle including ETCS ATP wayside and interlockings)

(A)                                    The Notifying Party's views

(1104)   In their response to the Commission's Article 6(1)(c) decision, the Parties argue that   a significant number of suppliers will continue to compete for re-signalling projects post-Transaction and that there are at least seven suppliers with re-signalling capabilities in the EEA. In particular, the Parties submit that Thales is far from being "behind of the Merged Entity".951

(1105) The Parties explain that by bundling projects, the Dutch Government aims to attract participation in the tenders and maximise its buying power and synergies. In fact, instead of tendering separate projects for discrete lines, the plan is to divide the  Dutch railway infrastructure into two parts, a north and south section. In  each section, six corridors are defined for migration to ETCS Level 2 by 2030. The Parties further contend that the tenders will be structured in such a way that the same supplier cannot bid for both the north and south lots, which will leave ProRail with two different suppliers that will be allocated six corridors each. In view of the Transaction, the Parties can therefore at maximum win one of the lots, not both. As these are re-signalling tenders, incumbent suppliers of interlockings will not be at  any particular advantage and ProRail is furthermore expected to allow for suppliers  of interlockings without a homologated product in the Netherlands to participate in the tenders. The Parties submit that the upcoming re-signalling tenders will attract a significant number of powerful competitors that will constrain the Merged Entity, including […].952

(1106) In relation to the re-signalling part of the K320 tender in Belgium, the Parties submit that Infrabel strategically designed the tender in a way as to encourage bid participation by players other than Alstom, despite the fact that they would first have to homologate an interlocking before being able to execute the project. The Parties submit that Infrabel did this by including interface information in the tender,  bundling all works planned for the time period until 2025, publishing its Masterplan that sets out its ambition to convergence towards a fully harmonised ETCS Level 2 network, and allowing bidders to homologate their interlockings only after the award of the tender.

1107) The Parties also note that the Norwegian nation-wide re-signalling project requires EULYNX compliance, which will lower entry barriers for new suppliers of interlockings in Norway.953

(1108)  In their response to the Statement of Objections, the Parties reiterate the arguments  set out in the Form CO and the response to the Article 6(1)(c) Decision. They further submits that (i) the Statement of Objections’ bidding analysis does not support the conclusions reached based on historic market shares,954 (ii) the analysis on closeness of competition is flawed because the market investigation input does not support the conclusion ([…]’s input is specific to the […] market, the outcome of the Danish re- signalling tender suggests that Alstom and Thales were the closest competitors, […] states that the Parties are not closest competitors, internal documents quoted are several years old),955 (iii) the Parties face strong competition on "big tickets" tenders (Bombardier, Thales and Ansaldo compete as much or more often than the Parties on large projects in the EEA);956 (iv) the Commission’s argumentation around ETCS technology is unclear and lacks any basis;957 (v) the assessment of bidding data understates the role played by competitors;958 (vi) evidence of entry and expansion is ignored;959 and (vii) countervailing buyer power is a defining factor in re-signalling projects (by bundling projects).960

(B)                                     The Commission's assessment - EEA level (B.i)  Market shares

(1109) The Commission notes that the ETCS ATP wayside re-signalling market is much bigger than the overlay market ([…]). The Parties' internal documents also note that […].961 […].962

(1110) In ETCS ATP wayside re-signalling projects (bundle of ETCS ATP wayside and interlockings), as shown in (1111) Table 39, the Merged Entity will become the clear market leader in the EEA, with a market share of [50-60]%. Thales will only be a distant competitor and the remaining suppliers will have significantly smaller market shares, all below [5-10]%.

Table 39: Bundle of ETCS ATP wayside and interlockings, market shares, 2008-2018, order intake (by value)

Source: Notifying Party's response RFI 131, Annex Q1

(1112) If only the contestable projects in 2008-2018 are considered, the Parties' and their competitors' market shares in ETCS ATP wayside re-signalling projects are shown in Table 40. As can be seen, on this measure, the Merged Entity will also remain dominant with a share nearing [50-60]% and the closest competitor, Thales, will be significantly smaller ([30-40]%). The remaining suppliers will have significantly smaller market shares, all [0-5]% or less.

(1113) In relation to the Parties' argument in their response to the Statement of Objections  that competitors’ market shares are underestimated, the Commission notes that only [0-5]% of the market is "unidentified" and hence not allocated to any competitor. Given that the Parties’ market shares are based on an overall market size estimate, this "unidentified" market share does not affect their shares, but it could affect their competitors’ shares. However, given that only [0-5]% is "unidentified", the possible market shares increase resulting from attributing this share is unlikely to increase the competitors’ market shares significantly. In any event, all of the Parties’ competitors, with the exception of Thales, will be a fraction of the size of the Merged Entity.

Table 40: ETCS ATP wayside contestable projects (re-signalling), market shares, 2008-2018, order intake (by value)

Source: Commission based on CPL

(B.ii)      Closeness of competition

(a)                 The market investigation confirms the Parties are close competitors

(1114) The results of the Phase I and Phase II market investigations supports the view that customers perceive Siemens and Alstom, together with Thales as close competitors  in ETCS ATP wayside systems.

(1115) [...] submits that "Alstom and Siemens are close competitors. In tenders for  which  they did not bid together but separately, competition was fierce on all grounds", referring  to  the  2014  ETCS  Level  2  tender  and  that  only  "Eventually  Siemens,

Alstom, Ansaldo submitted tenders for the ETCS2/IL project but, after negotiations, only Siemens and Alstom could propose conforming offers".

(1116) [...] further considers that "Siemens and Alstom are very close competitors in terms of product offering. They can both be considered as incumbent companies". [...] considers that for re-signalling projects, no other competitor comes close: "Hitachi- Ansaldo, in its bid for the 2014 ETCS L2/IL project, seemed technically less capable than Siemens and Alstom…".963 The market investigation also shows that the participation of Siemens in tenders in which Alstom bids has a positive effect on [...]'s ability to obtain better conditions from Alstom, as expressly stated by [...], which shows the competitive interaction between the Parties. No other supplier, apart from Siemens, has the same constraining effect on Alstom.964

(1117) […] reports that "[t]he size of the contracts and the active participation of  the 2  largest suppliers (Alstom and Siemens) together with the runner-up Thales made all suppliers participate fiercely in the tender clarification phase, leading to massive improvements between First negotiation [phase of the tender] and Best and Final Offer on both technical project management and price parameters".965 […] further states, when asked who is the closest supplier to Siemens in terms of technical capabilities, that "[t]he closest is Alstom both for mainline (ERTMS) and suburban (CBTC). Thales is second both for mainline (ERTMS) and suburban (CBTC). Ansaldo and Bombardier are not as complete in their product offering but are still part of the competition".966

(1118) According to […], the elimination of competition between the Parties and their combined overall size on the market in Denmark where they would control "four of the five major Danish signalling contracts, essentially covering everything but the signal[l]ing infrastructure in Jutland" would lead to an additional reduction of competition as the Merged Entity would "disincentiv[ise] the remaining smaller suppliers from bidding on supplementary contracts or economically disadvantage their bids through high interface costs. Moreover the consolidation of products [is] almost given to negatively impact several of the existing Danish contracts under execution".967

(1119) […] perceives Siemens as the closest competitor to Alstom and Alstom as the closest competitor to Siemens in terms of product offering and technical capabilities, ahead of Thales, Ansaldo and Bombardier. […] submits that Ansaldo and Bombardier are "not as complete in their product offering".968

(1120) […] also submits that the tender participation of Alstom and Siemens respectively impacted on the customer's ability to obtain better conditions from the other company, as well as from the other tender participants Thales, Bombardier and Ansaldo. […] further explains that "[t]he size of the contracts and the active participation of the 2 largest suppliers (Alstom and Siemens) together with the runner-up Thales made all suppliers participate fiercely in the tender clarification phase, leading to massive improvements between First negotiation [phase of thetender] and Best and Final Offer on both technical project management and price parameters".969

(1121) […] also considers that the Parties are each other's best alternatives in terms of products, product ranges, competitiveness, quality and innovation: "Siemens, Alstom, and Thales are significantly more advanced than other signalling players, including Bombardier and Ansaldo STS. […] has not had any interaction with the Asian signalling suppliers (especially CRSC) regarding trackside systems".970 According to […], the investments made by the Parties and Thales in ETCS Level 3 and automatic train operation (ATO) with ETCS will likely further increase the distance between the market leaders (Siemens, Alstom, and Thales) versus the rest.971

(1122) Regarding the Norwegian tenders, as explained by[…] : "the number of potential signalling suppliers has considerably diminished as a result of consolidation (Alstom/GE, Siemens/Invensys, Hitachi/Ansaldo); the proposed Siemens/Alstom transaction would reduce that number further, which is problematic. Only  four viable signalling suppliers would be left in Europe".972 While the re-signalling tender awarded in 2018 may cover a significant share of demand by […] for ATP wayside and interlockings in the coming years, it cannot be excluded that other tender opportunities will arise in Norway.

(1123) […] sees Siemens and Alstom as two of the three main suppliers of mainline  signalling in Norway and as head-on competitors, with Bombardier and Siemens ranked at the top, and Alstom as number three. […] considers Thales and Ansaldo less significant and/or successful players in Norway.973

(1124) […] when asked about the competitive pressure exercised by Alstom, submits that "i) Alstom has reached a 20% share of our market from almost nothing in 20 years. Their competitive pressure has been [maximal] ii) We have [been] able to get better services and products at lower prices".974 […] also submits that the competitive pressure exerted by Siemens has been "The same as Alstom but with a higher market share".975

(1125) In the Netherlands, following the elimination of the competitive constraint between  the Parties as a result of the Transaction, the customer will have limited possibilities to switch to alternative suppliers. The upcoming re-signalling tender by the Dutch Government will be very large, with a total budget of some EUR 2 300 million, of which ProRail is responsible for the implementation of track-side signalling worth around EUR 1 000 million to EUR 1 400 million.976 The Commission considers that only the largest players are able to undertake projects of such large size and complexity. In fact, if the re-signalling tenders in Norway (2018) and Denmark (2012) are taken as any guidance, the suppliers likely to participate in such large tenders are limited to only the very largest European players, namely the Parties, Thales, Ansaldo and Bombardier. CAF did not participate in either the Norwegian or Danish re-signalling tenders.

(1126) In response to a question on whether it expects  a sufficient number of bidders in  future tenders post-Transaction, […].977

(1127) […]explains that the four "big players", namely Siemens, Alstom, Bombardier and Thales tend to all participate in […]'s tenders, especially the larger tenders.  In relation to the upcoming re-signalling tender, […].978

(1128) In the UK, the bidding data shows that the Parties were the only two bidders for the single ETCS re-signalling project in the UK. This is so despite the fact that the re- signalling project would be strategically valuable for a supplier seeking to gain a foothold in the UK in anticipation of the full ETCS roll-out. A Siemens internal document […].979 Moreover, the Commission notes that […], was pre-qualified but dropped out during the tender process. The Commission considers that, on the basis of the available evidence, there are presently no other credible bidders for ETCS ATP wayside re-signalling projects in the UK apart from the Parties.

(1129) Re-signalling projects by their nature require the deployment of interlockings which, with few exceptions, are supplied exclusively by the Parties in the  UK.980  One market participant explains that the interlocking system will remain at the heart of ETCS signalling, which will need to interact with the interlocking technology supplied by the Parties.981 Other suppliers do not have access to the intellectual property that is held by the Parties in order to interoperate with the installed base. In this respect, […] observes that no other potential competitor has "[a]ccess to the intellectual property, design and compatibility specifications necessary to ensure interoperability with the merging parties' installed base at the fringes, where the new project meets existing infrastructure".982

(1130) The focus on ETCS re-signalling projects in the UK is projected to increase and interlockings will be an important element in competitors' ability to compete for ETCS re-signalling projects. ETCS roll-out is at the early stages in the UK and, as noted above, the market investigation shows that the merger will only strengthen the Parties' existing strong position in conventional signalling and further augment their advantage relative to other competitors when subsequent ETCS framework contracts are tendered. […] explains this trend noting that […]". The problem, […] explains, is that until conventional signalling is completely phased out, the Siemens ETCS RBCs will only work with the Siemens interlockings (and the same is true for Alstom).

(b)           Internal documents confirm that the Parties are the top ETCS Level 1 and  Level 2 suppliers and close competitors in ETCS ATP wayside re-signalling projects

(1131) The Parties' internal documents support the view that the Parties' main competitors in ETCS ATP wayside are limited to the five largest suppliers, Siemens, Alstom, Thales, Bombardier and Ansaldo, […]. In this regard, the findings set out in recitals (1072)-(1078) are also valid for ETCS ATP wayside re-signalling projects. It is clear that Ansaldo and Bombardier, within this group of five players, present a much weaker constraint on the Parties than the Parties do on each other.  An  Alstom internal document […].983

(1132)    Siemens considers […].984  This document is relatively recent (December   2016), and over a year after Hitachi acquired a majority share in Ansaldo STS.

Figure 20: […]

[…]

Source: Siemens' internal document (ID1331-89)985

(1133) The view that the Parties are close competitors in ETCS ATP wayside is also supported by Alstom's internal documents. An Alstom […]. The document shows […].

Figure 21: […]

[…]

Source: Alstom's internal document (ID2159-17557)986

(1134) Moreover, the Parties' internal documents also confirm that Siemens and […].987 […].988 In relation to the Parties' argument in their response to the Statement of Objections that this […].

(1135) Internal documents regarding tender participation also confirm that the Parties see themselves together with Thales as close competitors in ETCS ATP wayside re- signalling projects. For example, […].

(1136) The Parties' internal documents also show that they are close competitors for the supply of ETCS ATP wayside re-signalling projects in Belgium. An internal Siemens […].989

(1137) In the internal documents prepared during the tendering for the 2012 re-signalling project in Denmark, Siemens […].990  Also Alstom considered […].991 […].992

(1138) In the internal documents prepared during the tendering for the Hanzelijn re-  signalling project in the Netherlands, Siemens identified […].993 In its internal documents, Alstom assessed […].994

(1139)    As regards Croatia, […].

Figure 22: […]

Source: Alstom's internal document, […]

[…]

(1140)    This Alstom internal document shows […].

1141)  In relation to Romania, the Parties' internal documents confirm that the Parties exert   a significant competitive constraint on each other. […].995 […].996

(1142) The Parties' internal documents also confirm that the Parties are close competitors for tenders in Spain. For example, […]997 […].

(1143) Alstom's internal document "[…]998 […]. With regard to this tender, Siemens  attributed itself […].999

(1144)    Another Alstom internal document1000  […].

(1145)    Furthermore, Siemens also attributed itself […]1001  […].

(1146) In relation to Greece, for example, in the internal documents  […].1002  […],1003  […].1004

(1147) Contrary to the Notifying Party's submission, Alstom does impose a competitive constraint on Siemens in tenders in Hungary. A Siemens internal document […].1005 […].

(1148) Internal documents also confirm the closeness of Siemens and Alstom on the Norwegian market. In relation to the 2018 re-signalling tender, Alstom […].1006 […].1007

(1149) In relation to the UK, the Parties' internal documents confirm that they are close competitors. An Alstom internal document shows […]. As explained in recital (945), Atkins relies on the Parties' products to deliver signalling solutions to Network Rail. Moreover, it did not bid for the ETCS re-signalling tender and the Commission is not aware that it has access to its own ETCS platform.

(c)                    The Parties are leaders in advancements of the ETCS technology and close competitors for ETCS Level 2 Baseline 3

(1150)  Competitors and customers note that the main innovations for ETCS are driven by   the development of the ETCS standard, for example the evolution from Baseline 2 to Baseline 3 in addition to digitalisation and the introduction of ATO systems.1008 An Alstom internal document […].1009 […].

(1151) Therefore, the Commission considers that an important factor of competition for the rollout of ERTMS will be the ability of suppliers to commit to providing the latest technology ERTMS solution.

(1152) There are only two other competitors, apart from the Parties, who have developed ERTMS Level 2 Baseline 3 technology.1010 The market investigation reveals that Siemens and Thales both have in delivery an ERTMS Level 2 Baseline 3 wayside technology in Denmark, while Siemens has a pilot projects in Switzerland.1011 This is in line with the Parties' response to the Statement of Objections.1012

(1153)    An Alstom internal document shows […].1013

(1154) The market investigation also confirms the Parties' leadership in Baseline 3. A competitor, [...], suggests that Siemens and Alstom have a competitive advantage for Level 2 Baseline 3 ETCS technologies since (i) they have already developed technologies for wayside Baseline 3; (ii) they are at the most advanced stage, relative to the competition, in testing and delivery; and (iii) they have introduced their technologies in the largest number of countries to date (this point refers to both onboard and wayside).1014 The fact that the Notifying Party considers that developing ETCS Level 2 Baseline 3 technology is […] does not undermine the Commission’s finding that this constitutes an important area of innovation (for onboard and wayside) where the Parties have a competitive advantage.

(1155) [...] notes that "Siemens and Alstom are market leaders in innovation, particularly in the deployment of ERTMS baseline 3, ATO systems for mainline railways, digitalization and the use of big data".1015 [...] response also supports the view that  the Parties are leaders in innovation indicating that the Parties "have a long history of acting as competing innovators in the railway industry in general, including in relation to the Automatic Train Operation (ATO) business…".1016 While the Commission notes that some of these technologies are also related to onboard systems, it nevertheless notes that the statement is also relevant for ETCS ATP wayside.

(1156) Finally, the considerations discussed in recital (1064) are also applicable to ETCS  ATP re-signalling projects. In that regard, the Commission highlights that the same Alstom internal document […].1017 The Transaction would, therefore, eliminate a potential competitor in those markets, such as Germany, where one Party (Siemens) is present in the market for re-signalling projects and the other Party (Alstom) is not.

(d)           The bidding data shows that the Parties are close competitors

(1157) The Commission examined the Parties' participation in […]  contestable1018  tenders  for ETCS ATP wayside re-signalling projects in 2008-2018 in the EEA and the results confirm the view that the Parties are close competitors.

(1158) First, the bidding analysis shows that the Parties bid frequently: they are the number one and number three most frequent bidders for ETCS ATP wayside re-signalling projects. Siemens was, together with Thales, the most frequent bidder ([…]% and […]%), followed by Alstom ([…]%), and Bombardier ([…]%). As the Parties point out in the response to the Statement of Objections, Bombardier’s and Ansaldo’ participation rates increase if the share is computed by value ([…]% and […]% respectively). Nevertheless, an examination of value-weighted wining rates of contestable tenders shows that Bombardier and Ansaldo play minor roles in the ETCS ATP wayside re-signalling market with […]% and […]% won tenders in  terms of value.

(1159) Second, the Parties meet frequently in all contestable tenders. The Parties bid against each other in […]% of […] contestable tenders. In particular, in the […] contestable tenders in which Alstom bid, Siemens was the most frequent rival bidder ([…]%), Ansaldo, Bombardier and Thales participate in […]% of tenders in which Alstom bids. When Siemens bids, Alstom is, together with Thales, the most likely competitor it will encounter. In the […] contestable tenders in which Siemens bids, Alstom was the most frequent rival bidder ([…]%), followed by Thales ([…]%).1019

(1160) Third, the Parties are among the top three most likely to win a tender and post- Transaction they will be responsible for almost […] of all wins in contestable ETCS ATP wayside re-signalling projects. Siemens was the most frequent winner ([…]%), Thales second most frequent winner ([…]%),1020 followed by Alstom ([…]%), and Bombardier ([…]%). These results confirm the position evident from the Parties' internal documents, namely that Alstom, Siemens and Thales are close competitors, with Ansaldo and Bombardier being less close.

(1161) Fourth, when the Parties bid and lose, […]. Moreover, Siemens' internal tender documents show that […]. In that respect, the Commission notes that its finding that the Parties are close competitors does not necessarily imply that the Parties are each other's closest competitors, as the Parties appears to argue in the response to the Statement of Objections.1021

(1162) Fifth, the Parties are the most geographically diverse bidders for ETCS ATP wayside re-signalling projects indicating a willingness and ability to compete for projects across the EEA. Table 41 shows the countries in which the different suppliers participated in ETCS ATP wayside re-signalling tenders in 2008-2018.

(1163) As shown in the table, the Parties bid in more ETCS ATP wayside re-signalling tenders and in more European countries than almost all of their competitors over the period 2008-2018. The Parties together with Thales are the only suppliers bidding for ETCS ATP wayside re-signalling projects in […] countries or more (Siemens: […]) in the EEA. Ansaldo and Bombardier have bid in […] countries each. CAF and AZD have only bid in […] countries, the latter predominantly focused in Eastern Europe.1022 Although some other suppliers have participated in ETCS ATP wayside re-signalling tenders in the EEA in 2008-2018, according to the information  available to the Commission, all of them are active in one country only (e.g. ECM and Mermec in Italy, Movares in the Netherlands). In some cases, these local players participated in consortia with other signalling companies (such as Alstom/Movares in the Netherlands, which suggests that Movares focused on the interlockings and Alstom on ETCS ATP).Table 41: Countries in which the Parties and competitors have bid for ETCS ATP wayside re-signalling projects (2008-2018)