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The process through which a modem transmits and receives data over a telephone network is based on modulation and demodulation of signals. Modulation is the method used to encode digital data onto an analog signal, which allows the data to be transmitted over the existing telephone lines that were originally designed for voice communication.

When data from a computer or a digital device is sent, the modem modulates this data, converting the digital information into a form that can be sent over the telephone lines. The transmitted analog signal is then received by another modem, which demodulates the signal back into digital data so that it can be understood by the receiving device.

This modulation/demodulation process is essential because telephone networks operate using analog signals, while most computer data is in a digital format. The functionality of a modem hinges on this ability to switch between these two types of signals, making it the correct answer in this context.

On the other hand, other processes such as encryption or data compression do not specifically pertain to the fundamental operation of modems in transmitting data through telephone lines. While some modems may have features that incorporate encryption for security or compression to optimize data flow, these are not defining characteristics of their primary function with the telephone network. Additionally