The review was commissioned by the government, the sole shareholder in Royal Mail, to advise it on how to maintain the universal service as the postal market evolves following liberalisation.
The review panel has published its initial report, which covers current market conditions and trends but stops short of making recommendations, which will follow later this year.
The panel is clearly concerned about the state of Royal Mail, the health of which it says is critical to the postal sector's future.
The report states: "Modernisation [at Royal Mail] has been slow. In the future, modernisation will be more difficult still as volumes fall. Royal Mail is limited in the way it can access capital. Industrial action and a £3.4bn pension deficit -- one of the largest in the UK -- also pose constraints.
A key consideration of its coming recommendations is to "establish how best to create the incentives for Royal Mail to modernise its operation".
The report also takes the stance that while on one hand the introduction of competition has been positive for large business customers, on the other it has not helped smaller businesses and domestic users, and has also not produced as much innovation as might have been expected.
In regard to innovation, it says digital communications offer new opportunities for more flexible, targeted services at a higher value.
It expects the continuing changes in the way people communicate, involving a decline in letter volumes, to require change in the way the sector is regulated.
Reacting to the report, the government's business secretary John Hutton told The Times: "I am now clear that to be successful the Royal Mail must undergo radical change."
While Hutton would not elaborate, the Liberal Democrats pronounced their support for a part-privatisation of Royal Mail.
Sarah Teather, the party's business spokeswoman, said: "Royal Mail urgently needs a cash injection to allow it to modernise and compete with the private sector.
"Selling 49% of the Royal Mail shares would allow major investment without breaking the public purse."
The independent review panel has invited interested parties to submit evidence towards its consideration of future courses of action on May 19. The panel consists of Richard Hooper CBE, Dame Deidre Hutton and Ian Smith.