classification as a state aid if it is for services to a recipient to discharge public service obligations. First, the recipient undertaking must actually have public service obligations to discharge and those obligations must be clearly defined. Second, the parameters on the basis of which compensation is calculated must be established in advance in an objective and transparent manner. Third, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant receipts and a reasonable profit. Fourth, where the undertaking is not chosen in a public procurement, the level of compensation must be determined by a comparison with an analysis of the costs which a typical undertaking in the same sector would incur (taking into account the receipts and a reasonable profit from discharging the obligations). In other words any USO that exceeds this level would be a state aid under the Altmark test. This would mean that any USO Fund which is based on a tax that competitors of the postal company would pay would almost automatically violate the Altmark principles because a fixed tax rate would be contingent on the variable of the revenues of the companies from which it is accrued, and that would have nothing to do with the actual cost of providing the universal service. Similarly a fund that was given to JPCo as a result of proceeds of privatization would also be a violation, unless it was clearly reduced to the minimum required.

The allocation of such funds could, under European law, also constitute special and exclusive rights under Article 87 of the Treaty on European Union (“TEU”). In ascertaining whether the services are in the general economic interest, it is necessary to ask whether the service has special characteristics that distinguish it from other economic activities, and the transfer of funds must be shown to be connected to that specific characteristic. One of the relevant factors is a financial advantage beyond the cost of covering the USO being given to one of the undertakings. Hence, in order for a USO fund not to be caught under these provisions, it would need to be clearly defined.

Even if a political decision is taken to impose a Universal Service Obligation and obtain monies for that obligation from other parties, this has to be carefully handled in order to make sure that the incumbent company does not hide behind the USO as a way to engage in more anti-competitive practices. This has been dealt with in numerous ways across multiple network industry sectors. In general a number of themes emerge:

1. The Universal Service Obligation has certain benefits, such as name recognition associated with providing the service or built out infrastructure, as well as certain costs, such as setting up the infrastructure. The costs and the benefits must be weighed against each other. The historical Universal Service Obligation in the case of the Post Office will be an advantage as it has enabled the Post Office to build out the necessary infrastructure in rural and remote areas in Japan.

2. The Universal Service Obligation should be supported by those who benefit from it. Clearly, people in the rural areas themselves benefit from the Universal Service Fund. However, equally clearly, people in rural areas cannot be expected to support the Universal Service Fund entirely on their own. The obligation should therefore rest with taxpayers more generally. It must be clear that taxpayers are paying the USO. The more hidden the subsidy is, the larger the SOE can engage in predatory behavior by using the subsidy, as taxpayers will only complain if they see that their taxes are being abused. Indeed, there is a direct link between how long the SOE is capable of sustaining predatory conduct and how non-transparent the particular regulation is.