EXCERPT FROM COMMENTS BY RECYCLEWORLDS CONSULTING ON MERGER BETWEEN USA
WASTE SERVICES AND WASTE MANAGEMENT
2.2 Recycling Will Also Be Impacted
The Competitive Impact Statement contains the statement that "there are no
good substitutes for disposal of MSW." CIS, at p. 8.
In the short term this is true and provides further undergirding — if any
were necessary — for the government's insistence on some limited
divestitures. However, in the mid to longer term it is not entirely
accurate. Just as energy conservation soared with the OPEC price increases
for oil in 1979, as the price of disposal increases, the customer's desire
to find ways to divert his waste flow from overpriced disposal options will
tend to increase, most particularly through source reduction, reuse and/or
recycling.
Recycling is estimated to have diverted upwards of 30% of the municipal
waste stream, and more in some markets. This has been a significant
contributory factor, in addition to overbuilding, in the present excess
capacity situation for disposal that presently exists in parts of the
country.
Were monopoly rents to be imposed on waste services, then it could be
expected that the customer will tend to pursue recycling efforts more. The
prospect of increasing diversion rates would create a tempering force on
the market power of integrated waste firms.
This fact is known to the members of the oligopoly in waste services, and
it is not reasonable to expect them to forgo countermeasures. The question
here is whether the members of a waste oligopoly that is permitted the
Justice Department has not yet determined to prevent could act to effect
recycling negatively in order to avert that threat to their market power.
There is no parallel bottleneck, such as landfills, in the market for
recycling. However, for three reasons, a oligopoly in the market for waste
will tend to "naturally" extend itself to recycling.
2.2.1 Combined Contracts
Many franchise contracts for residential trash collection will be bid out
combined with recycle collection for ease of administration. If your
competitor can offer combined service and you cannot, you will be out of
competition. Similarly, many large and small commercial customers will want
to consolidate trash and recycle collection in one hauler.
2.2.2 Synergies
Also, there are very substantial synergies from combined waste/recycling
services. Recycling diverts waste from the trash truck and from the
landfill that makes possible avoided waste collection and disposal costs.
These very substantial savings that can offset as much as one half of the
cost of waste services will be lost by a recycle-only firm. This will make
it more difficult if not impossible for a recycle-only hauler to compete
with a combined operation, because it will not realize those offsetting
savings on the waste side to reflect in its recycle-only bid.
2.2.3 Consolidated MRF's
There is presently ongoing extensive consolidation in the material
recovery facility market. KTI is engaged in an extensive consolidation
effort among MRFs, including the recent takeover of a competing
consolidator, FCR, and with both acquisitions, will own 25 MRFs in 14
states. Their statements to investors indicates that they intend to market
successfully to national hauling firms who want a consistent partner.
If the MRF consolidators succeed (which is not certain as evinced by the
bankruptcy of Prins in 1996), one element in their market plan will be to
partner with recycle collection operations of the national firms. This
will make it very difficult for them to offer favorable terms to a
competing non- integrated recycle hauler who is challenging the waste
oligopoly.
3.0 Divestiture of Disposal from Hauling is the Appropriate Remedy
The facts described in this submission clearly demonstrate that the
remedies contained in the Consent Decree are inadequate to protect
competition in the solid waste industry in those geographic markets in
which there is no disposal capacity owned and operated by a public body or
by a company that is presently independent of the major integrated waste
firms and unlikely to be acquired by them in the near term.
Only a dramatic remedy can respond adequately to such a concerted and
effective strategy to monopolize the bottleneck landfill market within 1½
to 2 years in those geographic markets which will not have uncontrolled
disposal facilities.
The remedy which is within the power of the Justice Department under
Section 7 of the Clayton Act is to require the divestiture of all disposal
capacity including landfills, incinerators and transfer stations from
hauling in geographic markets in which there is no disposal facility owned
and operated by a public body or company independent of the majors that
will continue to operate for the near to intermediate term. (The other
remedy outside of Justice's authority is utility-style regulation of
landfills.) This is fundamentally different from the Consent Decree which
permits vertical integration by WMI, and the other majors which form the
oligopoly, in those geographic markets so long as the post-merger market
concentration for disposal (and for collection) does not increase.
Much argumentation in support of consolidation has been made that there
are efficiency gains from size in commercial hauling — note that this
ignores residential hauling most of which is already under franchise. We
have done studies that have corroborated the fact that gains can be
achieved in this regard, albeit not anywhere to the degree alleged. Also,
the ability of the customer to realize
these savings in a one or two hauler town is problematic. But, that debate
is not relevant to this
remedy since this outcome does not involve divestitures from within the
market for collection.
For no contention has been raised that the cost of providing waste
services to the consumer
will be lower due to vertical integration of hauling and disposal. And
there is none. Internalization,
as the industry refers to the practice of discarding trash loads at its own
landfills, has been related to
improved profitability through market power, not capital or operating
efficiency. Indeed — and this
devastates any future claim to the contrary — the fact of, and
justification for, the recent volume
exchanges demonstrates graphically that internalization is not the same
thing as efficiency.
A non-integrated, free standing landfill industry will also have the
additional benefit of
increasing competition in the market for disposal, especially in the
current era in which transfer
stations, which have become the norm, make the incremental cost of further
haul distances in search
of lower tip fees less significant. They will also preclude the use of
reverse squeezes.
If that remedy is not selected, then, at a minimum, the new Waste
Management should be
required to disclose the terms of the bids on its assets, and, after
opportunity for supplemental public
comment, the limited divestiture should be sold to firms, if any exist
among the bidders, not among
the firms showing cooperative behavior (i.e. Waste Management, BFI, Allied,
Superior, Eastern,
Waste Industries, Waste Connections and Casella).
____________________________________
Peter Anderson
RecycleWorlds Consulting
4513 Vernon Blvd. Ste. 15
Madison, WI 53705-4964
Phone:(608) 231-1100/Fax: (608) 233-0011
E-mail:recycle@msn.fullfeed.com