This year's bitter postal dispute harmed Royal Mail's reputation
The government has announced a review of UK postal services to see whether increased competition in the industry has had an impact on Royal Mail.
The Royal Mail's 350-year monopoly ended at the start of 2006 when other licensed operators were given the right to collect and deliver mail.
Strike action by postal workers this summer damaged Royal Mail's reputation.
Business Secretary John Hutton said retaining the universal postal service remained a "top priority".
At the same, ministers announced that Royal Mail chairman Allan Leighton would have his contract extended by a year to March 2009.
Unions criticised Mr Leighton's handling of a bitter pay dispute earlier this year which, although now resolved, is estimated to have cost Royal Mail more than £200m.
The dispute concerned changes pay and changes to working practices which Royal Mail said were essential to modernising the service and enabling it to compete more effectively.
Although it has faced increased competition for two years, Royal Mail is still the dominant postal supplier in the UK, with a market share of more than 90%.
But the amount of mail it handles has fallen and social changes which have seen more people using email to communicate.
Mr Hutton said liberalisation had brought "considerable benefits" to consumers.
But he added: "There can be no doubt that the market has evolved with new technologies such as email and text messaging having a huge effect on the way we communicate.
"In the light of these market developments, we are launching a review to examine the impacts of liberalisation, trends in future market development and the likely impact of this on Royal Mail, alternative carries and consumers."
Postal unions applauded the move, saying Royal Mail's future was "fundamental" to the success of the economy.
"This is a crucial review which will help to shape the future of the postal sector," said Billy Hayes, general secretary of the CWU.
"This review must address the needs of customers, workers and mail businesses to ensure that the UK has an effective and successful publicly owned postal service and efficient postal sector."
TERMS OF REVIEW
Assess impact of market liberalisation
Look at future market trends
Consider how to maintain universal service
Postal regulator Postcomm welcomed the review as "timely", saying it should focus both on making Royal Mail more efficient and ensuring a "level playing field" for its rivals.
"The forward-looking approach can ensure the public continues to benefit from an evolving universal service it values and the market develops to provide innovative, efficient and reliable services that meet the needs of all users," said its chairman Nigel Stapleton.
The review, led by former Ofcom deputy chairman Richard Hooper, will conclude next summer.