Modem manufacturers like to advertise apparent speed, regardless of how fast their products actually pump data. When you read their claims, keep in mind that for dial-up modems, the fastest practical speed is about 28K bits per second (Kbps). The 28Kbps limit is a function of the public switched telephone network's signal-to-noise (S/N) ratio. (The laws of information theory--first proven mathematically by Claude Shannon in 1948--determine how much information can pass through an analog channel with a given S/N ratio.) Most of the US has an S/N ratio of about 1000:1 for voice-grade lines, which--according to Shannon's Law--yields a maximum data rate of about 30Kbps. So, how can vendors claim 38.4Kbps, 57.6Kbps, and even 112Kbps? Data compression!
The International Telegraphic Union (ITU) recommendation for 28Kbps modems, called V.34, specifies a signaling standard designed to work reliably on most voice-grade lines. The operative word is most: There are still many local phone companies in the US where V.34 won't operate or where the overall quality of a long-distance connection is too poor for V.34. In such cases, V.32 can slow to 20Kbps, 14.4Kbps, 9.6Kbps, 4.8Kbps, or even 2.4Kbps.
A separate recommendation, V.42, defines an error-detection and -correction protocol for modems that enables them to ensure reliable, error-free data transport. A modem with both V.34 and V.42 capabilities is handy because it removes the responsibility of routine error handling from the attached computers. Given that an error-correcting modem provides guaranteed data transport, the ITU decided that the modem was also a good location in which to perform data compression.
The ITU released the V.42bis (from the Latin bis, for second) recommendation in 1990. The data-compression algorithm used in V.42bis modems has the potential to achieve as much as a four-fold decrease in data volume. In real life, however, compression depends on how much and what kind of data you have: Only in rare cases does compression reach even 50%, and then only with plain-text data. The more forthright vendors report their 28.8Kbps modems as running at 28.8Kbps. Other vendors go for the gusto, multiplying 28.8Kbps by two or four to get 57.6Kbps or 112Kbps.
It turns out that the modem wasn't such a good place to put compression after all. It seemed like a good idea back when users ignored security and plain text was the data of choice. Now, however, users are turning to host-based encryption and compression to both protect their data and get better data reduction.
Host-based compression algorithms have advanced beyond the original V.42bis recommendation and generally give higher compression ratios than modems (but that depends on the data you're trying to compress, so there's no universally applicable performance factor). For example, V.42bis is about the same as host-based compression with text data.
Graphics are different: A bit-mapped graphic compressed at the host into a Joint Photographic Experts Group (JPEG) image can result in a 50:1 size-reduction ratio (e.g., 1MB shrinks to 20KB). Onboard modem compression might achieve a 2:1 ratio, resulting in a 500KB file. The 20KB host-compressed file will transfer 25 times faster than the 500KB modem-compressed file. Also, to save space in online archives, users want to store files that are already compressed.
So, most file transfers today are encrypted, compressed, or both by the host and cannot be compressed any further by the modem. (Modem compression actually increases the amount of data in the file when you compress a previously compressed file!) For most users, modem compression is becoming more of a nuisance than a convenience.
Keep in mind that, when appropriate, ISDN TAs can perform compression, too. Many ISDN-capable routers provide compression because LAN data is often compressible. If you're getting confused by all the speed and compression variables in the modem world, remember: They all go away with ISDN.