Postcomm, the Postal Services Commission, is considering introducing competition to the UK market much earlier than the originally planned three years, because of the direness of the current situation and in the hope of creating choice for UK consumers.
The development follows what the regulator says is a dramatic decline in Royal Mail's service standards between April and June this year, during which period just over 88% of First Class mail was delivered the next day.
Royal Mail failed to meet all 15 of its performance targets, according to the report, meaning that 1.7m letters and parcels arrive late everyday.
Although 11 companies currently have a licence to rival Royal Mail, they are restricted to delivering bulk mail or items weighing more than 350 grammes.
Martin Stanley, Postcomm chief executive, said: "Customers in this area deserve to take their business elsewhere, and potential competitors deserve to be able to develop innovative new services to meet the demands of 21st century communicators."
Royal Mail could also be slapped with hefty fines running into millions because of its poor performance.
Postcomm has launched an investigation into how the postal service's standards, after showing improvements in early 2003, plummeted again at the end of last year and the beginning of this one.
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