Page "Companding" Paragraph 6

Companding is used in digital telephony systems, compressing before input to an analog-to-digital converter, and then expanding after a digital-to-analog converter.

This is equivalent to using a non-linear ADC as in a T-carrier telephone system that implements A-law or μ-law companding.

This method is also used in digital file formats for better signal-to-noise ratio ( SNR ) at lower bit rates.

For example, a linearly encoded 16-bit PCM signal can be converted to an 8-bit WAV or AU file while maintaining a decent SNR by compressing before the transition to 8-bit and expanding after a conversion back to 16-bit.

This is effectively a form of lossy audio data compression.