The postal service is suffering a "genuine crisis" and its future is under threat "as never before", the UK's biggest postal union has warned.
The Royal Mail says it has undergone major modernisation
The Communication Workers Union has called for an "honest" national debate on the future of Royal Mail, which it fears could be privatised.
Royal Mail, which ministers say will not be privatised, defended its record.
Trade and Industry Secretary Patricia Hewitt said the service was in profit and "going in the right direction".
"Three years ago Royal Mail was losing £1m a day. Now it is back in profit," she added.
"Service quality is going up and postmen and women who do an outstanding job, are earning up to £300 a week.
"We have set up an independent regulator, it is what the CWU campaigned for and Labour promised, in our 1997 manifesto.
"There is more to do to ensure the service continues to improve for customers, but Royal Mail is going in the right direction."
At Labour's spring conference in Gateshead, the CWU launched its own blueprint for a publicly-owned service, by saying that cost-cutting had raised serious questions about Royal Mail's long-term viability.
Leader Bill Hayes said its service had been "badly tarnished" by a lack of investment and deregulation.
"Privatisation is once again being uttered in some quarters as a panacea for a business which, it is claimed, has lost its way," he said.
"The truth is that none of the key problems Royal Mail faces have anything to do with ownership."
They were related directly to the company's "regulatory environment" and "a massive cost-cutting drive", he added.
The government has assured unions it has no plans to privatise Royal Mail but the CWU said public confidence in the service needed to be restored.
A consultation would take several months to complete, with the evidence ultimately being presented to the government.
Royal Mail hit back by saying a loss of more than £1m a day three years ago had been turned into a profit of more than £1m a day in 2005.
"This was essential to ensure that Royal Mail is in a position to compete effectively, providing a sound financial base to invest in its services, its people and its customers," a spokesman said.
"The quality of service Royal Mail is delivering is improving and it is committed to providing its customers with high quality services, day-in, day-out, while generating profits to reinvest in the business and its people."
Peter Carr, national chairman of Postwatch, the postal services' watchdog, said it was important to distinguish between privatisation and deregulation.
"Deregulation provides competition and, in our view, that is good for consumers. But it is also good for employees of the CWU simply because even if most of the mail starts in the hands of competitors it will still ultimately be delivered by the Royal Mail delivery staff and they can make a profit from that.
"There is not doubt that we have gone through a very difficult period, certainly from a customer's point of view.
"However, we have got a new management team that has been in place now for more than two years and they have turned a billion-pound loss into what will be a £400 million-plus profit this year - and that's progress.
"However, we still need to catch up with the standards of service. They are improving, but they are still not up to standard."