The Competition and Markets Authority said it was concerned that the deal will reduce much-needed additional competition for rail signalling supply just as major contracts are coming up for tender.

On HS2, the firms make up two of the four shortlisted bidders for the £540m job to design and buildsignalling systems that will control trains travelling at speeds of up to 360km/h and up to 25 years of technical support.

It added that the loss of competition across both mainline and urban signalling markets could increase costs for Network Rail and TfL and have an adverse knock-on effect on taxpayers and passengers.

Colin Raftery, Senior Mergers Director at the CMA, said: “Network Rail currently spends close to £1bn annually on mainline rail signalling – and this is expected to increase in future, as equipment needs to be replaced and the UK transitions to digital signalling.

“The cost of signalling, and its critical role in the safe and efficient running of our railways, makes it important that we ensure that future tenders can deliver value for money.

“This deal involves two of the main competitors for future mainline rail and urban metro signalling projects, so the loss of competition could risk higher costs and lower quality services, which would ultimately come at the expense of taxpayers and passengers.”

The supply of mainline signalling in Great Britain is currently undergoing significant change.

A recent market study carried out by the Office of Rail and Road (ORR) found that supply of mainline signalling suffered from a lack of competition, with the market essentially being limited to only two suppliers – Siemens and Alstom.

ORR made a number of recommendations intended to increase competition from alternative suppliers, such as Hitachi and Thales.

Network Rail is putting in place a new tendering process for its next major signalling procurement – the Train Control Systems Framework – to implement these recommendations.

Hitachi is now being asked to submit proposals to resolve the CMA’s concerns or the deal will face a more thorough Phase 2 investigation.