Underground is a challenging environment for wireless communication since the propagation medium is no longer air but soil, rock and water. The well established wireless communication techniques using electromagnetic (EM) waves do not work well in this environment due to three problems: high path loss, dynamic channel condition and large antenna size. New techniques using magnetic induction (MI) can solve two of the three problems (dynamic channel condition and large antenna size), but may still cause even higher path loss. In this paper, a complete characterization of the underground MI communication channel is provided. Based on the channel model, the MI waveguide technique for communication is developed in order to reduce the MI path loss. The performance of the traditional EM wave systems, the current MI systems and our improved MI waveguide system are quantitatively compared. The results reveal that our MI waveguide system has much lower path loss than the other two cases for any channel conditions.