Letter to Editor

RecycleWorlds (anderson@msn.fullfeed.com)
Fri, 22 Jan 1999 17:30:25 -0500

To the Editor:

Waste News has reported that the merger of USA Waste and Waste
Management would control 20% of the national market for solid waste
services. Don Cell (WN Letters to Editor, May 11) criticizes Waste
News for concluding that this would reduce competition. He states that
this conclusion overly simplifies
an analysis of the merger's impact. However, his analysis goes on to
over simplify the issue as well.

Yes, it is true, as Mr. Cell states, that there is no geographic
national market for solid waste (and that the solid waste market has
several underlying product segments). However, even after the proper
geographic and product markets are accurately delineated, he leaves
out the critical element of any analysis of competitive impacts.

That key factor is the market for disposal, because in the solid
waste industry, the landfill is the bottleneck. It is the resultant
concentration in the landfill market where the analysis should center
to truly understand what is happening in each regional market for
solid waste.

In that regard, Mr. Cell is correct that the rapid increase in
transfer stations during the 1990's has made the calculus far more
complex. For, once a hauler has to use a transfer station ANYWAY
(because, for example, all of the near-in landfills have closed), the
incremental cost of longer hauls to lower cost landfills in adjoining
areas is often not that significant. That word "anyway" is important.
This is because, the cost of transfer operations is not insignificant
relative to the cost of disposal. That additional cost has the
potential to make the hauler which would be the only one in an area to
rely on transfer stations uncompetitive (the cost is approximately
$5-10/ton for short haul transfers and $25-40/ton for longer rail
haul, relative to tip fees of about $30-35/ton that, in turn, are
25-50% of the price for hauling).

But, in any event, transfer stations are usually not fairly
available for independent haulers outside of the control of the large
integrated firms. And, in general, for a number of reasons that go
beyond the space available for a letter to the editor, it will
typically not be possible for an independent hauler to begin his own
transfer operation. Thus, although transfer stations have to be
factored into the equation, they do not change the basic premise for

Disposal, including transfer stations, are a bottleneck in the
solid waste industry, and competition will turn on how ownership winds
up being concentrated in the disposal market. Moreover, were it not
for that factor, as the Federal Appeals Court stated in 1984 in U.S.
v. Waste Management (743 F. 2d 976), high market
concentration in the hauling market is not necessarily a significant
consideration for competition (absent mob control) due to the ease
with which new entrants can enter a local market.

Also, omitted from Mr. Cell's letter is another related
consideration of major proportions that warrents careful thought. For
these mergers create an underlying financial motivation that may
literally force managers to engage in anti-competitive behavior.
Consolidation in the solid waste industry has developed with two
levels of premiums. First, there has been consolidation of more than
200-300 local independent haulers annually, which has necessitated
premiums of approximately 50% over what would normally have had to be
paid were it not for the need to induce so many independents to
consider a sale at one time. Then there has been the mergers of
publicly traded firms, with a second tier of premiums of 20-40%. If
the merged entities are not able to produce very substantial
efficiencies, then all of that good will being carried on their books,
often over the next 30-40 years, is going to be a severe drag on

There are two ways of looking at this condition. Some investment
houses that profit from any merger & acquisition activity tout the
many synergies that can
be expected, making, they say, for a win/win resolution. But, another
way to look at the solid waste industry is that it is really a local
business, and the national headquarters of the final consolidators are
not producing very much of anything on a net basis in improved hauling
efficiencies or a marketable national franchise. In the latter
case -- or in any case for that matter --
is it reasonable to assume that the few remaining integrated owners of
regional megafills are not going to consider the anti-competitive

In the Watergate affair, the now famous watchword was "Follow the
Money." Here, it ought to be "Follow the Landfills."

[NOTE: Please typeset the capitalized word "ANYWAY" as italics.]
Peter Anderson
RecycleWorlds Consulting
4513 Vernon Blvd. Ste. 15
Madison, WI 53705-4964
Phone:(608) 231-1100/Fax: (608) 233-0011