(Alliance News) - Royal Mail could be allowed to cut its letter deliveries to five days a week or three under options put forward by the industry watchdog as it warned the UK postal service risks becoming "unsustainable" without reform.
Ofcom said Britain's universal postal service "must modernise" as it outlined proposals for its overhaul following a review amid calls from Royal Mail to ditch Saturday letter deliveries due to slumping demand.
Ofcom said that the two "primary options" being mooted include changes to the number of days that letters are delivered a week.
That could mean that letters are only delivered to households and businesses five, or even three times a week.
But the UK government would have to change the law for this to happen.
This could save Royal Mail between GBP100 million and GBP650 million, the regulator said.
The other option is to make changes to slow down letter deliveries, meaning that it would take three or more days for most letters to arrive, although next-day deliveries would still be available when required.
This could save the company GBP150 million to GBP650 million.
It stressed that downgrading Royal Mail's delivery targets "was not an option".
Ofcom said it wanted a "national debate" on the future of the UK's postal service, given that the number of letters being posted has halved since 2011.
Ofcom Chief Executive Melanie Dawes said: "Postal workers are part of the fabric of our society and are critical to communities up and down the country.
"But we're sending half as many letters as we did in 2011, and receiving many more parcels.
"The universal service hasn't changed since then, it's getting out of date and will become unsustainable if we don't take action.
"So we've set out options for reform so there can be a national discussion about the future of universal post.
"In the meantime, we're making sure prices will remain affordable by capping the price of second class stamps."
The Royal Mail's universal service obligation stipulates that it must deliver letters six days a week to all 32 million addresses in the UK for the price of a stamp, no matter where the letters are going.
Royal Mail has urged the government and Ofcom to review its obligations, arguing that it is no longer workable or cost-effective, given the decline in addressed letter post.
Royal Mail, which is owned by International Distributions Services PLC, recorded a GBP419 million loss in its previous financial year, while it was also fined GBP5.6 million last year for failing to meet its delivery targets.
Ofcom does not have the power to scrap Saturday letter deliveries, with the six-day-a-week service being part of the universal service requirement stipulated by law under the Postal Services Act 2011.
However, ministers have been quick to dismiss any suggestion that the government would sanction such a move.
Earlier this week, Downing Street appeared to rule out allowing Royal Mail to scrap Saturday deliveries, saying it would "not countenance" the move, given the importance of a six-day service, particularly to businesses.
Postal Affairs Minister Kevin Hollinrake said on Wednesday the government was committed to a six-day service from the Royal Mail.
He told Times Radio: "The prime minister has been very clear on this, six-day delivery is really important for many people in this country, many of our citizens, but also for many of our businesses."
He added: "I believe the Royal Mail can build a sustainable model. But that sustainable model must be based on a day service."
Royal Mail-owner IDS welcomed Ofcom's report but said reform was "urgently needed".
IDS Chief Executive Martin Seidenberg said: "We have been calling on government and Ofcom to tackle this issue for four years, and the lack of action means that we are now facing a much more serious situation.
"Whilst other countries have grasped the opportunity to change, the UK is being left behind.
"A modern and sustainable postal service is crucial for our people, our company and the customers we serve."
The Communication Workers Union said a three-day delivery service would "destroy" Royal Mail.
CWU General Secretary Dave Ward said: "We are not resistant to change, but we will not sign up to a three-day universal service obligation, which would destroy Royal Mail as we know and would impact thousands of jobs.
"Royal Mail has the biggest fleet in the country, a presence in every community, and boasts an unrivalled infrastructure.
"This is the bedrock that a serious growth agenda, and the future of the company, can be built."
The union claimed Ofcom had produced the report without asking for input from frontline workers or the union.
IDS shares were up 3.4% to 270.70 pence early Wednesday in London. The stock is up 20% over the past year.
By Holly Williams, PA Business Editor
source: PA
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