What is companding and why is it used in PCM systems?

Companding (compressing + expanding) applies nonlinear quantization in PCM to improve dynamic range for signals with large amplitude variations. At transmitter, compression reduces amplitude range (small signals amplified more than large ones). At receiver, expansion reverses the process. A-law (Europe) and mu-law (North America, Japan) are standard companding laws. Benefits: Uniform quantization noise relative to signal level, improved SNR for quiet signals, reduced number of bits needed. 8-bit companded PCM achieves quality similar to 12-14 bit linear PCM.