The postal operator, formerly state-owned before it was privatised last year, is required by law to provide this so-called universal service at a uniform pricing tariff.

Appearing before a parliamentary investigation into competition in the sector, Royal Mail Chief Executive Moya Greene said the emergence of rival delivery services able to focus on densely populated, profitable areas was putting pressure on the company.

"If you allow cherry picking in the urban areas you undermine the economics," Greene said on Wednesday. "It siphons off very quickly a lot of revenue - more revenue than can be offset by even very vigorous efficiency measures and it makes the universal service unfinanceable and uneconomic."

Whistl CEO Nick Wells, sitting alongside Greene before lawmakers, said during a testy question-and-answer session that his company's focus on urban areas was necessary to establish itself.

"As a start-up business we cannot cover every household in the UK," he said. "We are going to dense urban areas ... It's the only way you can develop effective end-to-end competition."

He said the advantage was offset by the rates they paid Royal Mail to deliver to other parts of the country.

Whistl, a unit of Dutch mail group PostNL that was formerly known as TNT Post UK, has been delivering mail itself in Manchester and London since April 2012 without using Royal Mail's network, and has plans for a wider service.

Royal Mail has previously warned of the threat posed by Whistl's expansion plans, saying in June that they would reduce its revenues by more than 200 million pounds in 2017-18.

Whistl also collects and sorts mail in certain parts of Britain before handing it over to Royal Mail for delivery.

Greene urged regulator Ofcom to bring forward a review planned to take place in 2015 into the impact of competition on the universal service, to prevent rivals becoming entrenched in profitable areas before an inquiry has taken place.

She said the industry needed a "forward-looking regulatory approach where there are standards that apply to the whole industry, not just Royal Mail" on service quality and employment rules.

Ofcom said it was monitoring the threat to the universal service and would act quickly to protect postal users if it felt there was a threat to provision.

(Editing by Pravin Char)

By William James