Bristol bus operator First could be forced to reduce its fares if an investigation is held into large national companies monopolising local services.

The Office of Fair Trading has called for an inquiry into the bus industry after it found fares were nine per cent higher in towns and cities where a big firm had a stranglehold, such as Bristol.

The Competition Commission (CC) has the power to take strong action against companies if it discovers there is a lack of competition on bus routes.

The CC could order firms to lower their fares or control the frequency of services, force them to sell off parts of their business or make policy recommendations to the Government.

But if the inquiry goes ahead in 2010, it could take another two years for the findings to be unveiled and any action to be taken.

The possible CC investigation prompted a mixed reaction from politicians and bus companies.

Bristol city councillor Jon Rogers, cabinet member responsible for transport, welcomed an inquiry.

He said: "There is abundant evidence of a lack of competition leading to higher fares in Bristol. Many people in Bristol feel First's fares are far too expensive. The original aim of competition after deregulation has not transpired in the way it was envisaged."

Kerry McCarthy, Labour MP for Bristol East, called for bus fares in the city to be slashed earlier this month.

Of the plans for a CC investigation, she said: "They could introduce other bus companies into the market but I'm not sure that would work because First is all powerful.

"One idea is to introduce a measure of local regulation and give the local authority more power to decide who will run the bus contract. I don't think market forces have worked and it's too important for Bristol not to get this right.

"What First should be doing is testing out lower fares to see if more people use the buses. Sometimes you see a double decker go past and it's only got two people on it. Cabot Circus is offering car parking for £1 an hour so the bus companies aren't really competing."

First runs the majority of services in the Bristol area although other companies including Wessex Connect and Abus also cover some routes. ACL Travel, which ran services in North Somerset, has just taken its orange fleet of buses out of service.

Alan Peters, owner of ABus, which runs services from Bristol city centre to Keynsham and Stockwood, said his company runs a shared timetable with First on some routes.

He said: "First have always had higher prices in Bristol because car ownership in this part of the country is higher than elsewhere.

"Because there are fewer passengers, there are higher fares. First provide a better service than people give them credit for."

First Bristol, Somerset and Avon, which runs the bus services in the Bristol area, is part of FirstGroup, which made a pre-tax profit of £326.4 million in the financial year to March 31.

In its UK bus arm, which features a fleet of 9,000 buses and a market share of 23 per cent, FirstGroup's revenues increased by seven per cent and operating profits lifted 9.8 per cent to £134 million in the same period. The OFT said it proposed to refer the £3.6 billion local bus industry to the CC after finding evidence that the sector was "not working as well as it should". Its five-month probe found most routes were operated by only a small number of players and passengers were faced with higher fares in areas where competition was low.

The bus sector and other interested parties, including passenger groups and local authorities, now have until October 15 to give their comments before the OFT will give its final ruling on whether to make a reference to the CC.

Karen Baxter, spokeswoman for First, said: "We will read the OFT's report in detail and will respond by October 15."