We propose a variable-rate and variable-power MQAM modulation scheme f
or high-speed data transmission over fading channels. We first review
results for the Shannon capacity of fading channels with channel side
information, where capacity is achieved using adaptive transmission te
chniques, We then derive the spectral efficiency of our proposed modul
ation. We show that there is a constant power gap: between the spectra
l efficiency of our proposed technique and the channel capacity, and t
his gap is a simple function of the required bit-error rate (BER). In
addition, using just five or six different signal constellations, we a
chieve within 1-2 dB of the maximum efficiency using unrestricted cons
tellation sets. We compute the rate at which the transmitter needs to
update its power and rate as a function of the channel Doppler frequen
cy for these constellation sets, We also obtain the exact efficiency l
oss for smaller constellation sets, which may be required if the trans
mitter adaptation rate is constrained by hardware limitations. Our mod
ulation scheme exhibits a 5-10-dB power gain relative to variable-powe
r fixed-rate transmission, and up to 20 dB of gain relative to nonadap
tive transmission. We also determine the effect of channel estimation
error and delay on the BER performance of our adaptive scheme. We conc
lude with a discussion of coding techniques and the relationship betwe
en our proposed modulation and Shannon capacity.