Data Rates | Wi-Fi's Approach to Wireless

A data rate, in 802.11, is the rate of transmission, in megabits per second (Mbps) of the 802.11 header and body. The 802.11 MAC header, the body, and the checksum (but not the physical layer header) are transmitted at the same data rate within each frame.
A data rate represents a particular encoding scheme, or way of sending bits over the air. Each data rate can be thought of as coming from its own modem, designed just for that data rate. An 802.11 radio, then, can be thought of has having a number of different modems to chose from, one for each data rate. (In practice, modern radios use digital signal processing to do the modulation and demodulation, and therefore the choice of a modem is just the choice of an algorithm in microcode on the radio or software used to design the radio itself.)
Each data rate has its own tradeoff. The lowest data rates are very slow, but are designed with the highest robustness in mind, thus allowing the signal to be correctly received even if the channel is noisy or if the signal is weak or distorted. These data rates are very inefficient, in both time and spectrum. Packets sent at the lowest data rates can cause network disruption, as they occupy the air for many milliseconds at a time. Although one millisecond sounds like a short amount of time, if each packet were, say, ten milliseconds long, then the highest throughput an access point could get would be less than 1.2Mbps for 1500-byte packets.
The higher data rates trade robustness for speed, allowing them to achieve hundreds of megabits per second. The description of the 802.11 radio types will walk through the principles involved in packing more data in. Occasionally, someone may mention that this effect is related to Shannon's Law. Shannon's Law states that the maximum amount of information that can be transmitted in a channel increases logarithmically with the signal-to-noise ratio. The stronger the signal is than the noise floor, the faster the radio can transmit bits. Lower data rates do not take advantage of high SNRs as well as higher data rates do. As data rates go higher, the radios become increasingly optimistic about the channel conditions, trying to pack more bits by making use of the higher fidelity that is possible. That higher fidelity is held to a smaller distance from the radio, and so higher data rates travel less far. (But note that 802.11 uses a concept to ensure that every device within the longest range knows of a transmission, no matter what the data rate is.) Think of it as saying that the amount of available "space" in a channel is determined by the SNR. More SNR means that more bits can be packed, by reducing the "space" between bits. Of course, the smaller the "space" between bits, the harder it becomes to tell the bits apart.

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