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Current passive optical networks (PONs) use on–off keying (OOK) modulation throughout the entire network regardless of actual path losses. Statistics of commercial gigabit passive optical network (GPON) deployments show significant path loss differences among the optical network units (ONUs). Flexible 4- and 8-level pulse amplitude modulation (4/8-PAM) allocation for the better-situated ONUs can significantly increase the PON’s aggregated data rate. By keeping to intensity modulation direct detection (IM-DD) modulation and a constant symbol rate, the introduction of adaptive, multilevel PAM does not require expensive optics investments; additionally, 8-PAM is made feasible with zero-overhead data-aided equalization. Two scenarios for distributing the extra capacity are explored: first, controlling the dynamic bandwidth allocation of the time division multiplexed PON (TDM-PON) to provide equal time-length slots to both 4/8-PAM ONUs and OOK ONUs, thereby providing maximum aggregated capacity increase; and second, setting up the dynamic bandwidth allocation to provide equal capacity slots to the various ONUs so the entire ONU population in the same PON can benefit from the extra capacity. Both scenarios result in a larger aggregated capacity of the PON and provide additional options for the network operator during the network design phase.