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INFLUENCE OF MARKET REGULATION PROCESSES ON COMPETITION WITHIN ELECTRONICCOMMUNICATIONS INDUSTRYJuris BindeUniversity of Latvia, Faculty of Economics and ManagementAspazijas bulv. 5, Riga, LV-1050E-mail: d30247@lu.lvKEYWORDSElectronic communications industry, competition,competitive forces, regulatory environment, regulationex-ante, market liberalization, input-output model.ABSTRACTCompetition within telecommunications market inLatvia has experienced rapid development over the recentyears. This development has been promoted by severalobjective factors, such as economic growth of thecountry that facilitates increased demand fortelecommunications services, and the increasing qualityrequirements set forward by the customers. Promotion ofcompetition in the communications sector is assigned tothe national regulatory body which is responsible forissuing operational licenses, developing methodology fortariff calculations and, in specific cases, establishingeconomically grounded tariffs, as well as performingquality and safety control of the providedtelecommunications services.The aim of the paper is to assess influence of marketregulation processes on competition within electroniccommunications market in Latvia, by applying EuropeanUnion (EU) and national legislation on marketregulation, as well as examining competition from theclassical point of view of economics. To assess theefficiency of national regulatory body (Public UtilitiesRegulation Commission) in the telecommunication sectorthe input-output model for public administration isemployed.Author’s study proves that there exists a contradictionbetween economic and business interpretation ofcompetition viewing competition as rivalry andinterpretation by the European Union viewingcompetition as administratively and legally adjustableprocess. Therefore, the author suggests that ex-anteprinciple proclaimed by the European Union is not fullyobeyed in practice, thereby, allowing lobbying interestsof single stakeholders at the regulatory body.Results of the study confirm the hypothesis thatregulatory environment has an essential impact oncompetition in the market and competitiveness ofenterprises. This factor cannot be qualified as a subdimensionof any of Porter’s five competitive forces.INTRODUCTIONCountries, whose social structure is based onprinciples of capitalism and free market economies,usually develop more rapidly than the states withsocialistic centralized planned economies. This principalhistoric difference has created essential differencebetween economy levels of the so-called „old” and„new” EU Member States and the well-being levels oftheir inhabitants; the fact which is proved by Eurostatdatabase information regarding different aspects(Eurostat 2006).Key economic development principles of theEuropean Union are defined in the so-called LisbonStrategy (Common 2006) that sets an aim for the EU tobecome the most competitive region in the global market.Historically competitiveness is considered the keystoneof free market and an axiom for free development ofeconomics thus it would be logical for the EU institutionsto support to the utmost free competition as one of themain means to reach goals set forth in Lisbon Strategy.The Republic of Latvia has adopted its Lisbon Nationalprogramme (National Lisbon Programme of Latvia for2005-2008, Cabinet of Ministers Order No.684 fromOctober 19, 2005.).Telecommunications industry has experienced rapiddevelopment over the recent years from comparativelysimple structure when the principle „one operator – oneservice – one country” was dominating, into a verycomplex structure with many mutually competitiveservice providers, different services, global accessibilityof services. Thus, the telecommunications industry hasbecome a very significant factor for implementingeconomic development strategy.One of the most widespread models applied forevaluating competition and competitiveness is M.Porter’s Model of five competitive forces (Porter 1979)and (Porter 1980). Author of this article has added thesixth force to Porter’s model– regulating environment asan essential factor influencing competition and companycompetitiveness, which is not to be qualified as sub-Annual Proceedings of Vidzeme University College “ICTE in Regional Development”, 200678