As a low-cost optical transceiver for access network systems, we propose a new monolithic transceiver photonic integrated circuit (PIC) fabricated by bandgap energy controlled selective metalorganic vapor phase epitaxy (MOVPE). In the PIC, all optical components are monolithically integrated. Thus, the number of optical alignment points is significantly reduced and the assembly costs of the module is decreased compared to those of hybrid modules, that use silica waveguides. Moreover, by using selective MOVPE, extremely low-loss buried heterostructure waveguides can be fabricated without any etching. In-plane bandgap energy control is also possible, allowing the formation of active and passive core layers simultaneously without complicated fabrication. The transceiver PIC showed fiber-coupled output power of more than 1 mW and receiver bandwidth of 7 GHz. Modulation and detection operations at 500 Mb/s were also demonstrated. As a cost effective fabrication technique for monolithic PICs, bandgap energy controlled selective MOVPE is a promising candidate.