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What is data compression?
The fastest straight serial data can be transmitted reliably over the phone lines is 600 bps. Data compression is a way of squeezing data into a tighter "space" so that its transmission can be sped up. This is done by grouping the data together and submitting several bits simultaneously in a more complicated sound. Compression is based on recursion algorithms (a fancy way of saying, "you done did that one; let's move on"). Data compression can greatly improve the performance of a dial-up connection, but it is only possible when there is a protocol in place to handle lost data effectively, since every piece becomes so much more critical for the overall transmission. That is why you can only set a modem to compress data after you have turned error control on. And a modem will only compress data after error correction protocols have been established for a connection.
MNP-5 and V.42bis are the standard protocols used for data compression today. MNP-5 has a compression rate of 2:1 and produces a great deal of overhead in its compression. This will make the transmission of compressed files (like .zip files) even slower than without it. V.42bis has a compression ratio of 4:1 with less overhead. Furthermore, it can sense when compression is unnecessary on pre-compressed data, and so speeds up the connection.
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