Regular letters will take an extra two days to arrive under a two-speed mail service model to be adopted by Australia Post.
The change will see a faster priority service begin in September.
Australia Post is also asking the competition watchdog if it can raise basic stamp prices from 70c to $1.
Chief executive Ahmed Fahour said the changes would mean Australia Post could sustain the mail service while focusing on its profitable parcel and express delivery businesses.
"Australia currently has the lowest basic stamp price in the developed world," Mr Fahour said on Tuesday.
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"Unfortunately we must raise that price to ensure we can maintain the service, including five-day-a-week delivery and over 4000 post offices."
Mr Fahour said up to 97 per cent of mail was sent by business and government.
"Taxpayers, through Australia Post, can no longer afford to keep subsidising corporate Australia by running a below-cost letters service predominantly for this sector," he said.
Letters in the regular service will be delivered two days later than current timetables, while the priority letters will get there faster.
Mr Fahour said the rise of the internet had made the Australia Post regulations outdated, as letter volumes dropped rapidly.
Australia Post will deliver in 2015 the same number of letters as it did in 1993.
Without reform, the letter delivery business would lose $1 billon each year, Mr Fahour said.
Communications Minister Malcolm Turnbull told coalition MPs the government needed to have an "open kimono" approach - revealing what it is planning - to Australia Post, after the company forecast heavy losses over the next decade.
The two-speed service will begin in September.
Concession stamp prices have been frozen at 60c, while Christmas greeting card prices have been frozen at 65c.
Mr Fahour said even with the price rises, the mail delivery business would still lose money.
"We will be aiming to get it back to break even. The letters business won't make a profit," he said.
Mr Fahour was asked about his $4.6 million pay package and the number of executives earning more than $190,000 a year.
He said Australia Post was competing against multinational companies in parcel delivery and logistics, meaning they needed the best talent to stay competitive.
Mr Fahour said freezing Christmas card prices would keep an Australian tradition going.
"I certainly love getting Christmas cards," he said.
"Anybody whose ever got an e-Christmas card - do you really look at it?"
