Neil Renilson: Lothian Buses chief executive

Competition has intensified between the companies on the capital's busiest routes, with timetables changed, more vehicles moved in and some fares reduced.

But concern has been voiced that many travellers are suffering because other services are being reduced or abandoned altogether as resources are diverted.

The Office of Fair Trading, which regulates consumer protection and commercial activity, has begun an official inquiry into alleged anti-competitive practices.

A spokeswoman said that she did not know exactly how long it would take, but it would be months.

Edinburgh City council, which owns 92% of Lothian Buses, will consider the implications of the bus war on Thursday.

Public scrutiny

Aberdeen-based FirstGroup runs services in a number of major UK cities, and it already has about 55% of the bus network in Scotland.

However, Lothian Buses is the largest operator in the Edinburgh area.

Lothian Buses chief executive Neil Renilson said he was delighted by the inquiry.

"We are very relieved that the Office of Fair Trading has decided to mount a full investigation into FirstGroup's activity.

"It means that their behaviour will be exposed to the full gaze of public scrutiny.

They turnover �2bn a year so if they wanted to put us out of business they could and thanks to the Office of Fair Trading's intervention they will not be able to do that in private behind closed doors.

Lothian Buses chief executive Neil Renilson

"We are 2% of the size of FirstGroup, so they have the depth of corporate pocket that would allow them to fund losses virtually indefinitely in a small scale in Edinburgh.

"They turnover �2bn a year so if they wanted to put us out of business they could and thanks to the Office of Fair Trading's intervention they will not be able to do that in private behind closed doors."

However, general manager of First Edinburgh, Gordon Dewar, said: "We have been aware of Lothian Buses' complaints for some time.

"We have no serious concerns about the outcome of this investigation.

"We are a minor operator in this market and all we are doing is offering the best deal for the public.

"We have had a 35% rise in passengers since August - half of these people are new users in the bus market and the main reason they have come to public transport is because we have made it cheaper and more regular."

Breach of the law

He said he would co-operate fully with the investigation and said it offered a chance to clear the company's name.

Lothian has 75% of capital services

FirstEdinburgh, which operates across the south-east, central and borders regions of Scotland, was formed in 1999 when FirstGroup amalgamated three pre-existing operators - SMT, Midland Bluebird and Lowland.

A spokeswoman for the Office of Fair Trading said the complaint was first raised in March.

She added: "Lothian Buses have raised the issue.

"If we have reasonable grounds to suspect there has been a breach of the law then we can go on to a second formal stage where we have the powers to request information.

"We will be asking both companies and any relevant third parties for information about the alleged breach."