It doesn't work like that; it's not a traditional client/server architecture with a central server.
We all log into "matchmaker" servers that feed the background stuff like Galnet news and economy data, but the main connection between players is P2P, directly between player computers. If that connection is healthy enough (low enough lag, high enough router throughput, no ISP throttling), then two or more players see each other, up to the shared instance limit of 32 players.
In essence, this system is basically "all or nothing" for combat advantage between players. If the matchmaker servers decide there is too much lag or other connection problems, they simply won't co-locate players in the same instance. If you can see another player at all, the P2P connection should be healthy enough for low-lag and high frame rate combat.
The laws of physics and the network architecture still mean that players in Australia may have trouble getting into combat with players in the UK, but they should have no trouble playing with other Australians. In theory, at least. The network systems is still a work in progress.
Thank you for laying that our for me, that is what I understood, that it SHOULD WORK THIS WAY, and if it isnt, then give it time.