UPDATE 2-UK regulator looks to open up bus market
* CC says bus operators face little or no competition
* Rules out price controls and divestments for now
* To publish final report in November
* Move likely to cap industry profits
* National Express shares down 1.4 pct
(Adds comments from analyst, Stagecoach, trade body; shares)
By Adveith Nair
LONDON, May 6 (Reuters) - Britain's competition regulator is looking at ways to open up the bus transport market after finding operators face little or no competition in a move likely to cap profits in the industry.
The Office of Fair Trading referred the local bus market to the Competition Commission in January last year, following its study on the sector and public consultation.
A provisional investigation by the commission showed the five largest operators -- Deutsche Bahn's Arriva, FirstGroup (FGP.L), Go-Ahead (GOG.L), National Express (NEX.L) and Stagecoach (SGC.L) -- tended to make profits above the cost of capital over the last five years.
"There are a large number of towns and cities where bus operators face limited competition and little prospect of significant change," Jeremy Peat, Chairman of the commission's Local Buses Inquiry Group, said on Friday.
These companies provided over two-thirds of local bus services in the areas it looked at, the commission said in a statement on Friday. Privatisation of the UK bus industry began decades ago and deregulation dates back to 1986.
"In a market that was deregulated in anticipation of widespread competition that is clearly a problem and there are evident risks of disadvantages for passengers."
The regulator is investigating moves such as restrictions on obstructive practices such as ensuring access to bus stations for all operators, and new recommendations for local transport authorities on how they can promote competition.
However, it ruled out stronger measures such as price controls and forced divestments, a move the Confederation of Public Transport welcomed.
Simon Posner, Chief Executive of the trade body, added that Friday's report "does nothing to address the primary concern of bus passengers -- punctuality of services and the improvement of traffic congestion."
Arbuthnot analyst Gerald Khoo warned the report could restrain investor enthusiasm for the sector. "Our initial reading of the CC's findings is that they are towards the negative end of the potential range of outcomes," he added.
Shares reaction was muted, with shares in National Express down 1.6 percent at 258 pence, compared to a FTSE 250 mid-cap index down 0.7 percent. Stagecoach was up 0.5 percent and Go-Ahead was down 0.5 percent.
The full report will be published next week and the regulator will consider responses and hold further hearings before publishing its final report in November.
Stagecoach noted that the commission was not proposing any fundamental change to the industry's regulatory structure and that it would work with the commission on measures to improve passenger services. (Reporting by Adveith Nair; Editing by Rhys Jones and Rosalba O'Brien)