Ofcom today said Royal Mail must make its operations more efficient but signalled it would be relaxed if Parliament cut the company’s obligation to deliver letters from six to five days a week.
Royal Mail has been hit hugely by the shift in the public to email and social media and away from using letters.
Yet under an Act of Parliament, it has to keep delivering letters six days a week, with coverage across the whole of the UK.
Research put out by Ofcom today said few people would suffer if that reduction were permitted.
The report will be welcomed by Royal Mail, which has long said the so-called Universal Service should be reformed as it faces unfair competition from rivals who cherry-pick the most profitable routes in urban areas.
Ofcom said that the savings such a reform would make for Royal Mail would be between £125 million and £225 million a year.
However, even that would not be enough to safeguard the Universal Service in future year, it said, partly because Royal Mail was so inefficient.
It urged the company to modernise across its operations to ensure the service remained financially sustainable.
Ofcom identified Royal Mail’s parcels business as being particularly inefficient.
As the market for parcels has surged in an era of home shopping over the internet, Royal Mail’s infrastructure has failed to keep pace.
The company has devised a transformation plan to automate its parcels handling better and use data tools to improve its delivery routes, and Ofcom said such measures must be implemented successfully.
Lindsey Fussell, Ofcom’s networks and communications group director, said: "Our research suggests that people’s needs would still be met if letter deliveries were reduced from six days a week to five.
“It would ultimately be for Parliament to decide whether this change was needed. However, Royal Mail must still modernise and become more efficient to keep pace with customers’ needs.”
A spokesman stressed that the report was research, and not a recommendation to Parliament.
The watchdog is separately reviewing the future regulatory framework for post in a review set to conclude in 2022.
Royal Mail interim executive chairman Keith Williams said in the last six months alone, letter volumes have fallen by around a third.
That has had a significant impact on the finances of the Universal Service which lost £180 million in the first half of the year.
He said: “To stay relevant and sustainable, the Universal Service must adapt to life in the 21st Century.”
He said Royal Mail was working to improve its efficiency levels.