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The object of this work has been to study encoding of monochrome pictures with a rate of about 1 bit per picture element (pel). Differential pulse code modulation, DPCM, has been chosen to make the system reasonably simple. This motivates the choice of a fixed three-dimensional predictor made separable in time and space. It essentially amounts to encoding the frame difference using a two dimensional predictor. To improve performance, the quantizer is made adaptive and the encoding is combined with delayed decision. A three-level quantizer is being used with an adaptive scheme that works with either forward or backward estimation. The output from the DPCM unit is redundant and we have adopted entropy coding to further reduce the bit rate. The entropy measure is also used to adjust the quantizer parameters to achieve the desired bit rate of 1 bit/pel. Encoding experiments were carried out on a complex videophone scene by means of computer simulations.