FALLS CREEK FALLS STATE PARK, TENN. -- Scattered through the hills around this southeastern Tennessee park are the sort of small towns that have been abandoned by the major intercity bus companies in the wake of deregulation. Jasper, Dunlap, Pikeville, Altamont and Etowah, like other rural communities, were left behind in the unsuccessful pursuit of profits by the nation's major bus companies.

In the course of this year, however, the two bus companies that dominate the nation's highways have changed hands. Both Greyhound Lines and Trailways Lines Inc. have been or are in the course of being acquired by a group of investors led by Fred G. Currey, one-time chief of Trailways Inc. Last week Currey stood in front of a conference room in the inn here, talking about a plan to begin restoring service to rural areas.

"We want to take the metropolitan area of Chicago and make Piney and McMinnville available to it as destinations," Currey said.

His audience was a group of potential partners for Greyhound -- the operators of small public-private transportation systems that serve the isolated rural areas. These operators receive federal and state funds to carry the elderly, the ill, the handicapped and others to the social services that they need, and supplement their funding by providing general public transportation as well.

Greyhound is proposing to link its service with those provided by these alternative systems, most of which use fleets of small vans to provide a remnant of public transportation in small towns.

Last month, Greyhound officials met with representatives of the National Association for Transportation Alternatives, some state officials and local transportation providers to talk about its plan, which it hopes to launch in six southeastern states, including Virginia.

Alfred A. DelliBovi, acting administrator of the Urban Mass Transportation Administration and an energetic endorser of the concept, which helps fund the rural transportation systems, also attended.

Last week, Currey was here in Tennessee, where he hopes the first contracts will be signed. "As the bus industry retracted from the rural areas, the bus industry accelerated its own decline. That's the truth," said Currey. Under pressure from the bargain-basement airlines that sprang up in wake of airline deregulation, the bus companies looked for ways to cut costs, he said.

Revenue per mile was lower in rural areas than on routes between major cities, so they began cutting those routes -- often setting off storms of protest in the communities to be abandoned. "Nobody thought through the fact that when people from those towns got off the bus in an urban area, that they took the bus to another urban area," Currey said. The consequence of cutting off small towns was that ridership between major urban areas also declined, he said.

In a sense, Greyhound is taking a page out of the book the airlines wrote after deregulation of the airline industry. It is building a hub and spoke system for the bus industry.

The airlines have increased traffic between major cities by bringing in passengers from outlying areas to hubs. As a result, a flight that leaves Houston for Denver will carry not just those passengers who are traveling between the two cities, but might also be carrying passengers traveling from Shreveport, La., and College Station, Tex., to Denver and passengers traveling from Houston to Colorado Springs or Salt Lake City. That means the planes fly fuller, and the airlines make more money.

Currey hopes to increase traffic by bringing passengers to Chattanooga from outlying communities and by providing transportation to the small towns from major urban areas. "The bus industry is uniquely tied to rural origins and rural destinations," he said. "I believe there are people who live in Youngstown {Ohio} or Chicago who want to go to rural Tennessee."

Currey said that a visit last spring to the Port Authority Terminal in New York City had reinforced that belief. On the Friday before the Easter weekend, Greyhound had six busloads leaving at 10 p.m., and "nobody was getting off until the bus got to Richmond," he said. When Currey asked them about their ultimate destinations, they named small southern towns, he said. "I would ask, how are you going to get there, and they said that the folks were coming to get them," he said.

"What that taught us was that there were a lot of people who wanted to get home who couldn't get home because the folks couldn't come to get them," he said. He added that the destinations were not ones served by the airlines. "They are our inherent, natural niche," he said.

The bus companies lost money serving small towns in the past because "we were attempting to provide service with a 40-foot vehicle that cost $180,000 to $200,000," said Currey. When those buses were carrying only two passengers and a handful of packages, the service was a loser.

The basic outline of the plan for providing service to rural areas and small towns is for Greyhound to pay a commission for passengers delivered to Greyhound terminals in larger communities, such as Chattanooga, by the rural transportation providers. The rural systems would also feed packages to the Greyhound system. Small-town merchants have suffered from the cutback in bus service, which was often the main provider of parts and merchandise.

In some cases, Greyhound might arrange for "flag stops" -- occasional stops at a pickup point that doesn't generate regular traffic.

Emily Lyons, transportation director for the First Tennessee Human Resource Agency in eastern Tennessee, runs a transportation service that covers eight counties with 46 vans. In each county, a dispatcher in a senior citizen center directs the vans via two-way radio. The vans make routine runs, to deliver the elderly to the senior citizen center or the handicapped to a rehabilitation agency. In between, the vans carry passengers to grocery stores, appointments with doctors or even to work.

Providing that type of transportation would remain the principal business of the small transportation systems, but they could supplement their incomes by also providing feed services to Greyhound, said Greyhound officials.

"I feel real good about it," Ray Evans, transportation director for the Southeast Tennessee Human Resource agency and president of the Tennessee Association of Special Transportation. Evans' agency is expected to be one of the first actually to negotiate a contract with Greyhound and begin providing service. "It's going to be a service that we've not rendered, and we're going to have some people be able to move who haven't been." Evans said that his system transports people to doctors in Chattanooga and can easily deliver other riders to the Greyhound terminal there from the nine counties he covers.

Alvin H. Pearson, community service director for the Southwest Human Resource Agency in Tennessee, said he thought it would take from one to three years to get the joint operations fully developed. "It's needed. It really is. There are so many rural areas that don't receive any service at all," he said.

U.S. and state officials said they are also optimistic. "It's a good way for Greyhound to pick up passengers, and it's good for residents because it gives them access to service," said DelliBovi. The rural transportation programs funded through UMTA by grants to the states have been growing rapidly, he said. Currently 12,136 vehicles operated by agencies that receive the federal funding make about 172 million trips a year. "There are an awful lot of people in rural America that are transit dependent. The minibuses are their transportation lifeline," said DelliBovi.

Most of the recent history of the intercity bus industry has been a tale of decline. The industry's share of intercity travel declined from a peak of 8.8 percent in World War II to 1.3 percent of the market. Currey said, however, that the industry has experienced a rise in ridership this summer for the first time in five years.

Linking Greyhound's operations to those in small towns requires very little capital expenditure either on the part of the rural transportation providers or Greyhound, said Currey. In both cases, it will provide incremental income with little additional expense. Putting the two together amounts to little more than "an act of will," he said.

"We'll make it successful," he said.