(Alliance News) - International Distributions Services PLC on Tuesday outlined a modernisation programme for the Royal Mail, via reform of the postal firm's universal service obligations.

The proposal is based on three key principles: that reforms are good "for customers and growth"; for "financial sustainability"; and "for our people".

If successful, the Royal Mail would continue to deliver a one-price-goes-anywhere universal service and a choice of first and second class services, with first class letters still delivered six days a week.

Net costs, however, would go down by up to GBP300 million a year, delivered through a net reduction in daily delivery routes of between 7,000 and 9,000, with "fewer than 1,000 voluntary redundancies expected".

These changes are imperative if the beleaguered post service is to reach its "full potential", IDS argued, and will help to deliver "clear operational and financial improvements".

As it stands, the Royal Mail's universal service obligations have remained much the same since 2011. Letters must be delivered from Monday to Saturday, and parcels from Monday to Friday, at two delivery speeds.

However, financial losses and strike action have driven calls for reform.

For the six months ended September 24, IDS reported a pretax loss of GBP194 million, widened from a loss of GBP127 million a year prior, while revenue climbed 0.4% to GBP5.86 billion from GBP5.84 billion. Within that total, Royal Mail revenue fell 2.9% to GBP3.54 billion from GBP3.65 billion.

In November, Chief Executive Officer Martin Seidenberg said that while Royal Mail is now making good progress following industrial action and customer losses, both regulators and government are yet to "do their bit".

"It's simply not sustainable to maintain a network built for 20 billion letters when we're now only delivering seven billion," Seidenberg elaborated.

As such, the changes to the Royal Mail's universal services obligation outlined on Tuesday aim to address some of these concerns.

"Following extensive modelling and analysis of customer priorities, we have delivered to Ofcom a detailed proposal for universal service reform," said CEO Seidenberg.

"We have been calling for reform for more than four years and the lack of action by government and Ofcom has held back Royal Mail's transformation. Ofcom has started the process of reform with its recent call for inputs and has said it will provide an 'update' in the summer. Given the urgency, we call on Ofcom to accelerate their review and start consulting on changes without delay to give our customers, our people and our shareholders the certainty they need."

International Distributions shares were trading 0.2% higher at 273.60 pence each in London on Tuesday morning.

By Holly Beveridge, Alliance News reporter

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