Royal Mail could deliver on three days, saving up to £650 million

International Distributions Services’ (LSE: IDS) Royal Mail unit could be allowed to cut its letter deliveries to five days a week or three under options put forward by the industry watchdog Ofcom as it warned the UK postal service risks becoming “unsustainable” without reform.

Ofcom said Britain’s universal postal service “must modernise” and outlined proposals following a review amid calls from Royal Mail to ditch Saturday letter deliveries due to slumping demand. The two “primary options” include reducing the number of letter delivery days from six currently or slowing service standards so most letters take three or more days.

This could save the postal service between £100 million and £650 million.

However, these options would require legal changes. Ofcom wants a “national debate” given letter volumes have halved since 2011 even as parcel deliveries rise. It stressed downgrading targets was not an option.

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Royal Mail has urged reform, arguing the universal service obligation stipulated by law is no longer workable or cost-effective. Earlier this week, Downing Street appeared to rule out scrapping Saturday deliveries.

Royal Mail-owner International Distributions Services welcomed Ofcom’s report but said reform was “urgently needed,” while unions warned cutting service would “destroy” the company. IDS shares were up 4.1% in morning trade. The stock is up 20% over the past 12 months.