Published information concerning the mean speech volume and likely range of volumes in a telephone circuit is summarized, and curves are reproduced for the variation in instantaneous amplitude of an individual talker. It is concluded that, to be able to handle both types of variation, a p.c.m. system should have its smallest quantization step at least 62dB below the peak limiting level. This range can be handled by a 7-digit binary code using non-linear encoding (companding). Two main types of non-linear characteristic, namely logarithmic and hyperbolic, are compared, first on the basis of signal/quantizing-noise ratio and secondly in terms of theoretical information content. It is shown that, provided that the non-linearity parameter is chosen to give an adequate dynamic range, there is little to choose between the two characteristics.The possibility of using automatic volume regulators to reduce the dynamic range is also considered, but it is concluded that they give little advantage.