How should universal services be financed? In the context of further market liberalisation in the European postal sector, the compatibility between competition and the provision of universal services raises a number of policy questions, but perhaps the most fundamental question is how to finance universal service obligations.

Informed by a comprehensive review of experience in different countries and sectors, this study assesses several financing mechanisms that could be used, including the reserved area and compensation funds of various forms, placing particular emphasis on their applicability to the postal sector.

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