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Adaptive multirate (AMR) codec was standardised for GSM in 1999. AMR offers substantial improvement over previous GSM speech codecs in error robustness by adapting speech and channel coding depending on channel conditions. However, current standard do not exploit the multirate capability of AMR codec in source signal based adaptation that would optimise the average bit-rate vs. quality trade-off. This paper presents a source signal based rate adaptation algorithm for AMR codec in GSM system. Together with fast power control, it can be used to increase the system capacity and further increase the robustness of GSM AMR codec.