Prudential-Bache And ADP Lock Horns On Satellite Distribution Of Market Data

The plan by Prudential-Bache Securities, Inc. to operate its own satellite network for branch communications has strained the relationship between the firm and its chief quote vendor, ADP Financial Information Services. Their difference of opinion over who should distribute market data may be a sign of things to come as large wire houses look to move branch communications in-house.

At the heart of the disagreement is Pru-Bache's desire to move ADP's market data off ADP's network and onto its own interactive satellite network. "We certainly look forward to a long relationship with ADP, but we'd like to modify some of the aspects associated with the network," says William Rush, senior vice president, communications, at Pru-Bache. "It is absolutely no sweat to take [ADP's feed] and plug it into the hub location of the satellite and transmit it directly to our branches," he says, and in addition, it would be "a lot less expensive than the way ADP is providing the information to us today -- and more reliable."

By the end of 1987, Pru-Bache hopes it will have linked all of its domestic branches with an interactive Ku-band satellite system. The system is being developed by Tridom Corp. of Marietta, GA, a small start-up in which Pru-Bache holds a minority interest. The network will initially handle interactive data and eventually be expanded to broadcast video.

Several ADP officials either declined comment about their biggest customer or could not be reached, but Rush confirms that ADP is "reluctant" to relinquish the market data distribution function. ADP "should be looking to a more flexible stance as to what their real product is," he says. "Their core product is their information services and not that they have a network."

Another brokerage firm active in satellite networking agrees. "The [quote] firm that clings to the bundled approach is going to be at a competitive disadvantage," says Bernard Weinstein, first vice president at E.F. Hutton & Co. Satellite technology "diminishes the quote vendor's market position because one of their strengths in the past has been their distribution capability." He notes, however, that quote vendors themselves have the option to use satellite technology, although neither major player, Quotron or ADP-FIS, has done so.

While the Pru-Bache/ADP disagreement is the first of its kind, it is unlikely to be the last. In fact, Merrill Lynch & Co. may eventually face a similar showdown with its own joint venture, Imnet. Over 100 branches are now receiving Imnet market data and several Merrill wires over a satellite system operated by Imnet. At the same time, however, Merrill is testing the ability of its own Ku-band video network to move the same information, a prospect that does not please Imnet officials.

It is not clear whether ADP objects to relinquishing market data delivery in principle or to Pru-Bache's system in particular. Because of Pru-Bache's ownership interest in Tridom, some skeptics have suggested that the branch network's real function isn't branch communications, but to grease the market for an initial public offering.

If quote vendors won't unbundle data from distribution, Rush sees an opportunity for the unbundled equities data feed being beta tested by Reuters. "If the ADPs and the Quotrons in the U.S. marketplace continue to say that the network and the equipment are part and parcel of the overall package, they're going to open their flank for Reuters," says Rush. Weinstein agrees. Reuters has "a very intelligent strategy given the way the marketplace is changing," he says.