The president of Trailways, the nation's second largest bus network, says the next step in promoting competition in transportation should be deregulation of the intercity bus industry.

If the Carter administration, "really wants competition, they ought to deregulate buses," Trailways chief executive J. Kevin Murphy said in an interview with The Washington Post.

"Of any industry you can think of, there's none that could use it more," Murphy said.

He argued that an end to federal controls over bus routes and fares would help attack inflation, by allowing price competition.

Since the airline industry was deregulated, the tightly controlled bus business has had trouble competing with cut-rate airfares, Murphy said.

"On some routes they (the airlines) are cheaper than we are," the Trailways president admitted. The line's passenger loadings dropped 12 percent in July and August in the face of discount air fares, rebounding after Trailways got approval from the Interstate Commerce Commission to cut some fares.

Deregulation would not only allow buses to compete for a bigger share of the transportation market, it would promote competition within the bus field, where Greyhound now carries 60 percent of the intercity passengers.

"Regulation mainly protects the giant," complained Murphy, whose network of affiliated bus companies is second largest in the business but carries one-third the passengers of Greyhound, or about 20 percent of the market.

Murphy said Trailways recently has asked the ICC to move toward deregulation by ending controls on the small package express business and by giving the bus lines authority to cut fares without advance approval or to raise fares within the presidential wage-price guidelines.

But he said congressional action would be necessary to deregulate buses to the extent that airlines were deregulated.

The Interstate Commerce Commission has a Motor Carrier Task Force studying deregulation of the trucking industry, but buses are not included in that study.

"We really haven't gotten to the bus issue," an ICC press officer said Friday. Trucking is a $25 billion a year business; total intercity bus company revenues are about $1.25 billion a year.

Although airline traffic and profits have soared since deregulation, there was widespread opposition among airline executives to that move, and there is general opposition from trucking companies and the Teamsters Union to truck deregulation.

In the bus business, Greyhound is "in favor of total deregulation" but "totally opposed to piecemeal deregulation," said, Dorothy Lorant, a Greyhound vice president and press representative.

The difference, she explained, is whether bus lines will be free to end unprofitable routes as well as to compete for business that makes money.

"A lot of what is being promoted is re-regulation," she said. "There's a lot of talk about free entry, but you don't have to truly deregulate unless you have free exit."

On that issue, the Trailways president says he is willing to compromise. "Keep the exit rules we have now if that is a hang-up," Murphy said Friday.

Advocates of continuing controls over bus lines contend that if they could, the bus companies would abandon unprofitable routes serving small towns, eliminating the only public transportation in hundreds of communities.

Murphy said Trailways dropped 9.5 percent of its runs in the past two years. In most cases, Trailways still serves the same communities but buses run less frequently.

About 60 percent of Trailways routes are unprofitable "looked at on their own," he added, but those routes feed passengers into longer distance runs that make money and are needed by the bus company.

The dispute over maintaining service should not block elimination of other regulatory shackles, Murphy argued. "Our biggest problem is our inability to compete."

Trailways has eight applications pending to add new routes that would compete with Greyhound and typically has to wait three years to get ICC approval to add a route already served by another line.

He said the line is pushing the ICC to deregulate the package express business, a highly profitable service that provided Trailways with $59 million in revenues last year, (compared with 146 million from passenger fares). Although packages ride the same buses and routes as passengers, they have a separate regulatory system.

ICC control over buses, Murphy complained, is even more restrictive than the Civil Aeronautics Board's control over airlines was before deregulation.

Before they were allowed to cut their fares to compete for customers, airlines regularly tried to gain business with free drinks, champagne and steak flights and other amenities.

Buses can't do that, Murphy said. "If we gave away free drinks the ICC would say it was a rebate and it would be illegal unless we gave it to all our customers." And even that would require ICC approval.