By Will Smale BBC News Online business reporter

The recent walkout saw post boxes locked up

The recent spate of unofficial strikes by Royal Mail workers has put the beleaguered company back in the mire.

Even with all staff now back at work, such is the backlog of mail that hundreds of thousands of homes and businesses across the UK may still have to wait up to a fortnight for that important letter or parcel to finally arrive.

Whatever the rights or wrongs behind the unofficial walkouts, the public can be forgiven for being completely exasperated with the Royal Mail.

But maybe not as frustrated as the company itself.

What we actually sell is trust, and we are going to be in trouble if we don't have trust Billy Hayes, general secretary, CWU

Because the industrial action was unofficial, whatever agreements the Royal Mail can broker with the Communication Workers' Union (CWU), there is no guarantee the workers will not choose to down tools - or rather, letters - again in the near future.

And all at a time when the Royal Mail continues to haemorrhage cash - its most recent annual loss, reported back in the spring, was �611m.

Modernisation

Losing so much money, it is understandable that the company, led by chairman Allan Leighton, is determined to move ahead with its three-year modernisation plans, centred around reducing its 200,000 strong workforce by 30,000, and introducing more efficient working practices.

ROYAL MAIL FACTS Employs 200,000 Delivers 81m items a day Loss of �611m in 2002/2003

Two things that will inevitably rile its staff, and create a classic Catch 22 situation: the Royal Mail needs to cut costs, but by doing so the workers may be prompted to walk out, thus creating even more losses.

However, the company's need to turn its finances around is made more pressing by the one word guaranteed to put the fear of God into any monopoly business - 'deregulation'.

It is already in place for bulk deliveries, with four other companies able to deliver a business's - or very popular person's - 4,000 or more letters a time.

These competitor businesses are currently Express Dairies, Hays, TPG and UK Mail.

But this segment is only a tiny percentage of the postal business.

Seismic

The seismic change will come in four year's time, when the entire postal industry will be completely deregulated.

From April 2007 most people wishing to post a letter should be able to choose from a number of alternative companies.

The only uncertainty remains coverage in rural and peripheral regions of the UK, and whether the new providers will be obliged to offer their services in each and every part of the country, and not just those of high population.

To prosper in this competitive market place, the Royal Mail will need to be as lean as possible.

Andy Frewin, external relations director at Postwatch, the postal industry's consumer watchdog, believes the Royal Mail will be able to meet the challenge.

The Royal Mail is definitely still overstaffed and needs to be much meaner and leaner Andy Frewin, Postwatch

"It is firstly important to differentiate between letters and parcels. To deliver anything above 350g you don't need a licence, so more than 4,000 companies currently deliver parcels and it is very, very competitive," he said.

"When it comes to letters, the Royal Mail still has 99.7% of the marketplace, according to official Postcomm figures.

"It is obviously very hard to lose money if you are in such a monopoly position, and the Royal Mail is definitely still overstaffed and needs to be much meaner and leaner. But we do not believe this will mean compulsory redundancies because it has such a high level of staff turnover or churn."

Fresh air

Mr Frewin added that Allan Leighton - who has already halved losses - was "a breath of fresh air".

He continued: "Deregulation and the resulting choice is always good news for customers, and I believe that the Royal Mail can still be very successful. Despite all the talk of emails, more letters are still being posted than ever before.

"They said in the past that the telegram was going to kill off letters, and then it was the telephone, and it is the same situation now - every year more letters are being delivered."

A spokesman for Postcomm, the regulatory body of the postal industry, said that in order for the deregulated market to work, it needed a strong and successful Royal Mail.

Billy Hayes, general secretary of the CWU, said: "Obviously the last week wasn't helpful to state the obvious, and people will think of alternative ways.

"At the same time, in things like industrial action, there are two culpable parties. Obviously we now need to work together and make sure we offer a reliable service.

"What we actually sell is trust, and we are going to be in trouble if we don't have trust," argued Mr Hayes.

A spokesman for the Royal Mail said that once a binding agreement had been secured with the union, it would again be full speed ahead on the modernisation reforms.

"The way forward is continuing with our three-year programme, which was started a year and a half ago," he said.

"The changes are ahead of schedule, and it will be full steam ahead," added the spokesman.