* Regulator keen to protect competition between smaller taxi firms
* Comes soon after Uber becomes legal in Australian capital (Recasts, adds comment from Cabcharge)
By Byron Kaye
SYDNEY, Oct 12 (Reuters) - Australia's competition regulator said it will likely block a global taxi booking app backed by domestic firm Cabcharge CAB.AX - a key second win for Uber Technologies Inc in a country where it is still illegal in most states.
Following its expansion into 60 countries in six years, California-based Uber is grappling with heightened regulatory scrutiny and court cases, particularly in Europe where governments have been leery of the company's impact on the traditional taxi industry.
The Australian Competition and Consumer Commission said on Monday it plans to stop taxi-booking monopoly Cabcharge from introducing a rival app, to be called iHail, to preserve competition between smaller domestic players - a decision which effectively removes Uber's biggest domestic threat.
"The ACCC accepts this app would provide a more convenient way for consumers to book taxi services, but ... this comes at too big a cost to competition," the commission's chairman, Rod Sims, said in a statement.
The statement made no direct mention of Uber but said iHail would achieve a potentially dominant position due to the larger fleet of taxis its ownership structure delivers.
The draft ruling comes two weeks after the Australian Capital Territory became the first of the country's eight states and territories to legalise the company which has been operating in Australia for three years.
Sarah Kaine, an associate professor of business at University of Technology, Sydney, said the regulator's preliminary finding did not appear to take into account that Uber was now the more dominant force in the market.
"In prioritising one area of competition, they've ignored a complete shift in the market," she said.
Cabcharge has pinned its hopes on iHail, developed by Minneapolis software firm Taxi Services Inc and in which Cabcharge has a 10 percent stake. The app was slated to be rolled out in Australia, the United States and Britain.
With Uber collecting more than one million customers in Australia, Cabcharge has seen its annual net profit fall 17 percent in the past business year while its shares have lost a third of their value since the start of the year.
Cabcharge said in a statement that the draft ruling will not impact its plans for proprietary taxi apps.
Cabcharge shares fell 3 percent on Monday, underperforming a broader market decline of 1 percent.