Royal Mail would be able to cut Saturday letter deliveries and still meets the needs of most customers, according to the regulator.
Cutting the service would save up to £225m per year by 2022-23, a report from Ofcom said.
But this in itself would not be enough to make the universal service sustainable in the long term, it said.
Royal Mail has struggled to keep up with the shift in demand for more parcel deliveries from online shopping.
At present, Royal Mail’s universal service obligation means it has to deliver letters for six days per week and parcels for five days.
That service meets the needs of 98% of residential users and 97% of small businesses in the UK, an Ofcom-commissioned survey found.
Cutting Saturday letter deliveries would still meets the needs of 97% of consumers and small businesses, the Ofcom report said.
Any change to Royal Mail’s universal service obligation would need to be made by Parliament.
Royal Mail has found it difficult to modernise and to keep up with the shift to online shopping, which has been accelerated by the coronavirus pandemic.
Despite a surge in demand for parcel deliveries in the six months to 27 September, Royal Mail pre-tax profits still fell more than 90%.
“While the pandemic has made 2020 a particularly challenging year for Royal Mail, the issues facing the company due to the changing market and consumer behaviour were apparent before the pandemic started to have an impact,” said Ofcom.
“Unless Royal Mail can modernise its network to adapt to parcel customers’ changing needs, and operate more efficiently, the sustainability of the universal service could be at risk in the longer term.”
‘Rebalance the service’
Keith Williams, interim executive chairman of the Royal Mail Group, said the universal service “remains vitally important” even though letter volumes have fallen by around a third in the past six months.
“The reduction in letter volumes has had a significant impact on the finances of the universal service, which lost £180m in the first half of the year,” Mr Williams said.
“This… demonstrates the need to rebalance the universal service in line with growing consumer demand for parcels, and lower usage of letters.”
He said that Royal Mail was “working hard to improve efficiency and transform our parcels operation”.
But he added: “Too many parcels are still sorted by hand, and we have not adapted quickly enough to the decline in letters.”
“We will consider Ofcom’s findings very carefully,” Mr Williams said.
“We look forward to engaging further with government, Ofcom, our unions and other stakeholders to ensure the universal service continues to meet the changing needs of consumers, and ensure it remains financially sustainable.”
The Communication Workers Union (CWU) said postal services have never been more essential.
“We should be investing in our national infrastructure, we should be looking for ways to protect and enhance a six-day universal postal service, not for reasons to cut it back,” said CWU general secretary Dave Ward.
“While letter volumes have continued to decline, there is a huge demand for affordable high-quality parcel services that cover every part of the country and during the pandemic Royal Mail has handled over 90% of all Covid-19 testing kits.
“A six-day universal service remains essential to the UK and we should be looking at building new products and services into it to support its long-term sustainability rather than managing its decline.”
Citizens Advice said the Royal Mail was “a vital public service and the universal service obligation is the safety net that protects it for everyone”.
“We don’t want to see the start of a slippery slope in reductions to the service,” it added.
A government spokesman said: “The universal service obligation, which currently sets out that Royal Mail must deliver letters six days a week, is set out in legislation. Any permanent changes would be for Parliament to agree. We have not received a request to change the obligation.
“We have noted Ofcom’s updated findings on postal services, and will consider them carefully.”