TESTIMONY OF DON ROWLEY

Publisher, *Flagstaff Arizona Daily Sun*

BEFORE THE POSTAL REGULATORY COMMISSION

Flagstaff, Arizona

May 21, 2008

Good afternoon. My name is Don Rowley. I am Publisher of the *Arizona
Daily Sun* here in Flagstaff. We are a subsidiary of Lee Enterprises,
which also owns more than fifty daily newspapers across the country. I
am pleased to welcome you to Flagstaff. With me today is Jeremy
Alexander, the *Daily Sun's* Circulation Director*.*

The purpose of my appearance here today is to discuss our views on
universal service. As customers of the U.S. Postal Service since the
founding of the Republic, newspapers have long depended upon reliable
and predictable delivery of our mail products. Because we compete with
many other advertising mailers, we also want to have the same access to
postal facilities, rates and services as our competitors.

After I describe the *Arizona Daily Sun*, I will talk about certain
aspects of universal service that are important to us and the daily
newspaper industry more broadly. In doing so, I will also discuss our
concern that the Postal Service's planned implementation Flats
Sequencing System ("FSS") will unreasonably restrict access to postal
facilities, increase operational costs, and reduce service quality for
many Lee newspapers.

# 

# **I. DESCRIPTION OF THE *ARIZONA DAILY SUN ***

The Daily Sun is daily newspaper with circulation of over 11,000 on
weekdays and Saturday and Sunday circulation of more than 12,000 homes.
We serve Coconino County with subscribers as far away as Page, Arizona,
but most of our circulation distribution is concentrated in and around
Flagstaff.

The Daily Sun also publishes a weekly non-subscriber publication called
*Midweek by Mail,* delivered to about 18,000 homes through the US mail.

I might also mention that the Daily Sun owns and operates Direct
Impression Mail Services, a full-service direct mail company that
prepares over three million pieces a year that are mailed through the
postal service.

# **II. UNIVERSAL SERVICE**

The Commission has solicited comment on the roles of geographic scope
and range of product offerings in universal service. Let me address this
primarily from the point of view of the *Arizona Daily Sun*.

First, we, like most other newspapers, use First-Class Mail to deliver
statements and invoices to our subscribers and advertisers and receive a
substantial portion of our payments through the mail. This service is,
and should remain, a fundamental component of universal service -- the
need for physical delivery of statements, invoices, and payments is
likely to remain strong for years to come.

As for the delivery of newspapers and periodicals, let me admit at the
outset that the *Arizona Daily Sun* makes only small use of Periodicals
class, mailing only about 90 subscription copies daily, almost all to
out of town recipients. However, we care deeply about that class of
mail, and many of our newspaper colleagues -- especially community
papers and non-dailies -- depend on Periodicals class for their
distribution. Although we mail relatively few newspapers, timely
delivery is very important to us and other newspapers, because it is
very important to our subscribers. It is very frustrating for a
subscriber not to receive today's news until next week, or to receive
several days' editions in a big stack on one day.

For these reasons, we continue to support a definition of universal
service that includes delivery on a timely basis to our subscribers
wherever they live. To do that, it is necessary that we continue to have
access to the Postal Service facilities that provide the best service
quality to those subscribers.

I understand that the Commission has also asked whether advertisements
should be covered by the universal service obligation. As mailers of a
substantial amount of advertising, we believe that advertising mail is,
and should be, part of the universal service obligation. This conclusion
is supported by the fact that advertising mail -- First and Standard
combined -- now comprises the majority of the mailstream. That level of
demand implies a need for the service and that the Postal Service should
provide that service.

I understand that the Commission has also invited comment on the role of
access to postal facilities and services to universal service. Although
often people think of access in terms of individuals' access to post
offices and mailboxes, access is vitally important to business mailers
as well. We need the ability to put our mail in the mailstream at the
locations that give us the best combination of service quality, postage
cost, and our own preparation and transportation costs. If the Postal
Service takes steps to restrict our access to the postal facilities that
work best for newspapers, that impairs the universality of the service.

Although I would prefer to leave legal issues to others, I think that
the mailbox rule and the postal monopoly are related to universal
service. In particular, if the Postal Service chooses to curtail
service, such as prohibiting entry at certain facilities, then it may be
appropriate to consider relaxing the monopoly or the mailbox rule in
order to allow others to provide the service that the Postal Service
would no longer offer.

**Iii. Impact of Flats Sequencing System on UNIVERSAL service**

Speaking on behalf of the daily newspaper industry, we are concerned
that the Postal Service intends to implement the Flats Sequencing System
(or "FSS") in a manner that would curtail our access to the postal
facilities which enable the best service, while raising costs and
decreasing service quality. It also would impose burdensome requirements
on newspapers which would not be imposed on our competitors. We believe
these effects would be contrary to universal service.

***Background***

As you are aware, daily newspapers' predominant use of Standard Mail is
for the delivery of our Total Market Coverage ("TMC") products, which
typically consist of preprinted advertising inserts. Our TMC programs
provide advertisers with "total coverage" of a geographic area. We do
this by delivering the advertising inserts as part of the newspaper to
our subscribers in the target geographic area, combined with Standard
Mail delivery to households in the same areas who do not subscribe to
the newspaper.

Typically, TMC mailings are sent at Standard Enhanced Carrier Route
rates. Depending upon a newspaper's subscription density on a particular
route, the mailings typically qualify for high-density rates, but they
often qualify for saturation rates on routes where there are fewer
newspaper subscribers.

Newspaper TMC mailings have been a significant source of revenue and
volume growth for the Postal Service in recent years. According to NAA
data, newspapers spent nearly \$786 million on Standard Mail in 2006, an
increase from less than \$713 million in 2004. About one-third of this
mail qualified for saturation rates on their routes, and two-thirds were
mailed at high density flats rates.

Newspapers currently enter much of our TMC mail at destination delivery
offices to assure timely delivery. Because our advertisers demand that
our TMC packages arrive to consumers on the same day in conjunction with
in-store sales, newspapers have developed mutually satisfactory mailing
arrangements with local postmasters to meet the necessary critical entry
times.

Lee Enterprises is part of this story. Currently, multiple Lee
properties -- like most daily newspapers  prepare their high-density
and saturation TMC mailings together and deliver them to the same DDU
entry units at the same time. In the last week we've heard concerns from
Lee properties in Wisconsin, Pennsylvania, and Kentucky just to name a
few. According to NAA data, about half of TMC mailings nationwide are
entered at delivery units. Our property in Carlisle, Pennsylvania alone
enters over 70,000 weekly TMCs at DDU entry units. This access to the
delivery unit is vital. In some cases, newspapers would face two major
challenges: A competitive disadvantage in delivery time and price versus
saturation mailers, and unattractive deadlines for newspaper
advertisers.

***The Problem***

Apparently to build volume for the FSS machines, it's our understanding
that the Postal Service is planning to prohibit newspaper TMC programs
from entering their [high-density]{.underline} flats mailings at DDUs
served by SCFs equipped with FSS. Instead, our high-density flats will
have to be entered at the SCFs. However, [saturation]{.underline} rate
mail -- typically used by newspapers' saturation advertising mail
competitors (and also by newspaper TMC programs on routes where
subscriber penetration is low) -- will not be required to go to the SCF
facilities. They can still be entered into local delivery units or post
offices where they receive the best possible service. This change would
force newspapers into a bi-furcated distribution process for essentially
the same product.

Eliminating the ability of newspapers to enter high-density flats at the
postal delivery units, which demonstrably provide us with the best
delivery would materially increase our costs, degrade the service we
receive, and increase our postage rates. Newspapers regard this
reduction in access to facilities that have used successfully for years,
and that our competitors can continue to use, as a reduction in both the
quality of service that we receive and as a reduction in universal
service.

(Let me pause here to make clear that my remarks here are as a
representative of the newspaper industry. In our particular case, the
effect of the new policy on the *Arizona Daily Sun* is unclear. One of
the first SCFs in which FSS equipment will be deployed is Phoenix, more
than two hours away from here. Flagstaff has its own SCF and thus is not
in the Phoenix SCF region. We hope that the Postal Service will not
divert any of our mail to the Phoenix SCF, since there is an SCF in
Flagstaff.

Even if the *Arizona Daily Sun* ultimately will not be forced to have
its flats mail processed on FSS machines, at least until FSS equipment
is installed in Flagstaff, this problem is a real one for many other
newspapers across the nation. As we learn more about the FSS system,
many newspapers have come to believe that the restrictions on access
that will accompany FSS implementation will impede access to postal
facilities and harm service. A reduction in service quality caused by an
inability to enter our mail at a convenient facility is an impairment of
universal service.

***Restricting entry options is harmful***

A requirement that newspapers enter high-density route TMC mailings at
FSS-equipped SCFs, instead of the delivery units, would harm newspapers
at a time when we are already under substantial economic pressure.

First, it would basically double our transportation costs by forcing us
send the same product -- our TMC mailings -- through two separate mail
streams, depending upon whether a particular route qualifies for
high-density or saturation rates. Mailings that we today enter together
at delivery units would instead have to be split and sent separately to
SCF processing facilities (high density) and to delivery units
(saturation). This would raise our costs significantly and jeopardize
our ability to meet the critical delivery time demands of our
advertisers*.*

Second: to meet the new entry requirements we will have to modify
production schedules and execute split press runs to prepare
high-density and saturation-eligible mailings for different dispatch
times. This will increase our operating costs with no offsetting
benefit.\
Third: our *postage* costs would increase because the SCF discounts are
smaller than the delivery unit discounts. At the new rates that just
took effect on May 12, our high-density products would both suffer an
increase and be at a 20 percent rate disadvantage to our saturation mail
competitors such as Red Plum.

Fourth: most importantly, our service will decline. The USPS's own
service standards provide a 2-3 day delivery window for mail entered at
SCFs, compared to a 1-2 day window for mail entered at DDUs. Since
newspapers cater to timely demands from readers and advertisers, SCF
entry for FSS processing will, by the USPS's own admission, put
newspapers' at risk of having our products delivered late. If
advertisers perceive our service to be unreliable, they will take their
business elsewhere.

Our solution is simple: The Postal Service should continue to allow
newspapers to enter sequenced high-density TMC products at delivery
units. This would expand, not reduce, newspapers' access to facilities
by allowing those that wished to enter their high-density mail at SCFs
to do so, without jeopardizing the service or raising the costs and
rates for TMC programs that choose to continue to enter high-density
mail at delivery units. This also would preserve competitive equity with
our saturation mail competitors, who will be exempt from FSS processing
and will be allowed to enter their products at local post offices.

If the USPS imposes FSS-related restrictions on entering mail that (1)
substantially increase our production and transportation costs, and (2)
results in inferior service, while (3) raising our postage rates *and*
(4) giving our competitors both a rate and service advantage, we will
have lost a part of universal service. With service declining, daily
newspapers will feel that they have no option but to explore alternative
means for delivery. This is a very real prospect as most daily
newspapers are exploring cost cutting measures in this difficult
economic climate.

Thank you for your time and consideration. I would be happy to answer
any questions that you may have.