The Welsh Rugby Union has been advised to consider scrapping one of Wales' four regions to concentrate resources.
Mike Hall says the Dragons should become a development side
Five regions were introduced in 2003 for that reason, cut to four after a year as the Warriors were disbanded.
The regions have their squads stretched by the Powergen Cup, have not made the Heineken Cup quarters for two years and are struggling in the Celtic League.
"We've too many sides so have to go to three and make the other a development team," said ex-Wales captain Mike Hall.
"We have a lot of promising Under-21 players who are not being seen, but if they were in the development side it would bring them through and leave more quality and strength-in-depth in the other three.
"Given current performances you would have to consider cutting the Cardiff Blues or the Newport Gwent Dragons.
"But you also have to look at infrastructure and the amount of money coming into a region, and given that the Dragons should be the development side."
The views of former Cardiff, Wales and Lions three-quarter Hall, speaking on BBC Wales ' Scrum V rugby programme, are shared by Ospreys chairman Mike James.
"My solution would be to bite the bullet and reduce from four to three regions," the former Swansea boss told the South Wales Evening Post.
"I want to stress this is a personal view, not a view being advanced on behalf of the Ospreys, but I think it is important there is a debate because we are in danger of being left behind.
"There are 60 million people living in France, yet they have only five clubs who compete seriously in Europe.
"England have a 12-team top flight, but the best few clubs are known to everyone, while Ireland now have effectively two provinces as major players in the Heineken Cup.
"That is the trend. People are concentrating resources and if we are going to compete we should do the same."
The WRU refused to comment after the failure of any of the Welsh regions to reach the European knock-out stages.
But Union chairman David Pickering admitted on Friday that the results had been "disappointing".
"There's only one way forward and that's to work together," he told BBC Sport Wales.
"What is encouraging is that the Welsh sides have made sure they are not full of Antipodeans, but that they rely on Welsh players.
"There's no easy fix. The academy structures are up and running, we have to keep working hard."