It's correct to say mobile phones, with the plural S, when you talk about "they", more than one student.
The students can be playing on the bus, as they are sitting "on" the bus, but the object they use is "with". "They are playing with their mobile phones".
If you say "the mobile phone", it suggests there is only one phone, and it is a special phone. "The" is a definite article. while "their" is a possessive pronoun. "Their" refers to who owns the object / objects.