This is standard practice. Otherwise the railway who has a high fixed startup cost simply can't compete with a bus route who's fixed costs are so much lower as they don't have to build and maintain the road they run on.
The big problem with Public Transport is that it only makes a 'profit' on certain routes and certain times of the day. To get a regular full time service over all areas you have to have strong regulations.
I would expect that PT if left to 'market forces' would run 2 hours in the morning peak, 2 hours in the evening and would be operated by 30 year old junk heaps of buses that barely operate. You would have no services during the day, evening or weekends.
I'm of the opinion that governments should operate PT directly, however governments typically have terrible trouble running large concerns effciently - politics kicks in and the organisations get used as some sort of 'sheltered workshop' to make employment figures look good.
However if you 'privatise' you need a strong transport regulator to ensure that that the companies are held to their supply contracts and that the government just doesn't end up funelling money into the pockets of the transport company shareholders. To often this is what appears to happen and socially every one was probably better off with the sheltered workshop model...
You need a strong transport regulator who works with the land use/planning people and together they make a development plan that includes the whole spectrum of land use, they draw bus and rail routes on the maps as decided by expert transport planners and either run the services them selves or write strong contracts for private companies to operate said services.
But it has to be controlled and planned from the top in a holistic manner for the long term good.