The collapse of the traditional letter could cost Australia Post $1 billion a year and drag down the Federal Budget.
The postal giant has revealed that revenue from traditional letters is drying up so fast that putting off a decision on Australia Post could "overwhelm" the organisation.
It is planning more expensive priority mail for ordinary consumers as one way to save its bottom line.
The Commission of Audit has backed privatising Australia Post, arguing the dividends it returns to taxpayers were likely to dissolve in the face of people using email.
Chief executive Ahmed Fahour confirmed yesterday that dividends - which totalled $881 million between 2009 and 2012 - were likely to disappear within 18 months.
He said Australia Post would lose $350 million on its letter services this year. It would hit $1 billion soon after.
Mr Fahour said the slump in letter volumes was accelerating, falling between 8 and 11 per cent a year. He said taxpayers' money tied up in Australia Post could be lost if changes were not made quickly.
One change to be put in place next year will result in higher priced priority mail for ordinary letters. Australia Post will also start delivering parcels, Express Post letters and satchels to households on Saturdays.
'Without change and reform, we do not have the ability to absorb this loss.'"Australia Post chief executive *Ahmed Fahour *