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Do you know the best stocks to profit from booming mobile data downloads?

These days, a mobile does far more than connect us with the ones we love. We can read and reply to emails, catch up on news, find out what friends are doing on a Friday night, buy and sell shares, transfer money, share photos and many other things besides.

What people want and need in a mobile phone is a sufficiently fast connection to do all these things: that means 3G data coverage, at a minimum (if not 4G, thanks very much). Telstra Corporation Ltd  (ASX: TLS) is the clear leader in providing this kind of coverage. The map below depicts the telco’s data coverage, and gives viewers an idea of how coverage quality varies. I couldn’t find an equivalent data coverage map on the website of Telstra’s main competitor, Optus, which is owned by Singapore Telecommunications Ltd (ASX: SGT), though I know from experience, its data coverage is far weaker in regional Australia.

Source: http://www.telstra.com.au/mobile-phones/coverage-networks/our-coverage/

Optus and Vodafone, which is owned by Hutchinson Telecommunications Limited (ASX: HTA), clearly can’t match Telstra’s coverage, and want access to the larger telco’s regional and rural infrastructure. Indeed, the Australian Financial Review reports that there could be a legal stoush if the government tries to force Telstra to share their network in rural and regional areas.

Telstra argues that if its competitors “chose to invest in Australia as we did they would be in a different position… If we believe that we haven’t got a fair outcome… we would take action.”

Of course, it’s not that simple, because it is almost always inefficient to duplicate a telecommunications network. That’s part of the reason why I own shares in first-mover fibre optic telecommunication companies.

There is some small chance that Optus could make some headway against Telstra’s dominance in regional Australia. The reason for this is that the government is subsidising new mobile infrastructure in regional Australia, but the infrastructure must be made available to other networks on commercial terms.

Truth be told, Optus appears to be focused on the most populous areas, so I doubt Telstra shareholders have anything to worry about. However, Telstra’s mobile data revenue might one day be slightly eroded by smaller telcos such as iiNet Limited (ASX: IIN). iiNet already provides free wifi to subscribers in the Adelaide CBD, at Perth Airport and in some Perth taxis. When free wifi is available, smartphones have no need for mobile data to use apps, and can even make calls over VOIP apps, such as Skype, Viber or WhatsApp.

Foolish takeaway

I made a big mistake not buying iiNet shares in 2012, but I’m happy to let others own Optus. Telstra’s dominant 3G and 4G networks give it a sustainable competitive advantage in the mobile data segment. Optus’s focus on populous areas is uninspiring to me, and vulnerable to internet-focused telecommunications companies’ free wifi strategies, in my opinion.

Shares in telecommunications companies have performed strongly in the last couple of years, making them more expensive than is ideal. Partly for this reason, I prefer to invest in the smaller telecommunications companies, although I’m not buying at current prices.

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Motley Fool contributor Claude Walker (@claudedwalker) does not directly own shares in any of the companies mentioned in this article.

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