Bus firms face fares inquiry by competition watchdog

The watchdog said local bus services tended to be dominated by a small number of large players and considered complaints that new entrants were blocked from the market.

Local bus services gain at least 1.2bn in public support each year but this could represent "poor value for money for taxpayers", the OFT said.

Services in London and Northern Ireland are excluded from the probe.

Its study of the 3.6bn market found more than a third of local transport authorities outside London were predominantly served by only one major industry player.

Between them the big five – FirstGroup, Stagecoach, Arriva, National Express and Go-Ahead – account for around two-thirds of the local bus market.

In August the watchdog made an initial decision to refer local bus services to the Commission - which is now set to launch a lengthy probe into the major operators.

Bus firms have expressed fears that a long investigation will deter investment in the industry until the Commission publishes its conclusions.

A senior director at the OFT, Heather Clayton, said: "One of the concerns that we think the Competition Commission should take a look at is the tendency for local areas to become dominated by a single operator."

The OFT does not want a return to the fierce "bus wars" which broke out on many local bus routes following deregulation in the 1980s, but said large operators "should face a healthy level of competitive constraints".

Ms Clayton added: "The OFT believes that it is appropriate for the Competition Commission to investigate how, in its various forms, competition can be harnessed to deliver what passengers want and the best value for money for the taxpayer."

Many large areas and counties have one very large player with high market share – such as Cornwall, Lincolnshire, the Isle of Wight and the West Midlands – while several cities like Bristol, Brighton, Cardiff, Cambridge and York only have one provider of any size.

With high levels of regional concentration, smaller bus firms which come up for sale may be unattractive to any purchaser other than the dominant local operator and act as a barrier to entry, the watchdog added.

The OFT found higher fares were prevalent in areas where operators with a strong market position were not challenged.