Abstract: Digital transmission systems operating over microwave radio generally employ phase modulation rather than amplitude modulation because phase modulation is less sensitive to non-linearities in the transmitter. Coherent demodulation is typically employed in the receiver to ensure maximum immunity to the thermal noise of the radio receiver. This, in turn, requires that the receiver include circuitry to recover an unmodulated carrier from the incoming digital signal for use as a phase reference in the demodulation process. Unfortunately, the phase of the recovered carrier is subject to ambiguities which may result in the demodulated digital signal being transposed and/or inverted, resulting in gross transmission errors. Differential encoding of the digital signal, prior to modulation, overcomes this problem but may create additional problems, such as the inability of the receiver to monitor transmission errors by means of the parity bits which are included in the digital signal to be transmitted.