About speech preprocessing in mobile phones
Yes, the cellular phones use various forms of compression to convert the captured analog audio (speech) into the digital bitstream for transmission through 2G/3G/.../.

The specific method used depends on the GSM version which might dictate its own bandwidth constraint and backward or forward compatibility issues into the audio encoding stage.

Most typically a 2G/3G system utilizes a variant of voice code based on a linear predictive coding (LPC) scheme which converts the analog sound captured by the microphone into a set of coefficients (parameters) according to the vocal tract model of the speaker. Unlike PCM, mp3, ogg, ra, etc., this is not a waveform coder but a parametric voice coder therefore. 

The speech is reproduced at the recevier side by using a similar code excited LPC (CELP) which uses various excitation signals for the vocal tract model to reproduce the input signal as natural as possible.

You can find more details in the literature by the keywords vocoder, LPC, CELP, GSM speech coding etc...