Although for a fixed bandwidth, PAM-4 enables twice the transmission capacity in comparison to binary modulation, it has to pay a price of a higher required signal-to-noise ratio (SNR). This is because the additional voltage levels with PAM-4 reduce the level spacing by a factor of 3, and therefore PAM-4 is more susceptible to noise than a binary digital signal. Consequently, PAM-4 is normally used for a short-haul optical system where a higher SNR can be obtained. This is also the reason why a higher order modulation such as PAM-8, which has 23 voltage levels and can theoretically triple the capacity, is difficult to use even in a short-haul system.
Despite the fact that there are many other modulation techniques that can also double or triple the transmission capacity for a fixed bandwidth, PAM-4 modulation has been a leading solution, mainly due to its simplicity and low power consumption, as the most promising modulation technique for 100G and beyond optical pluggable transceivers for both intra- and inter-data center optical links, and a strong PAM4-centric ecosystem is forming. For example, electronic PAM-4 chips based on CMOS technology with two channels of 50Gb/s PAM-4 (2x50Gb/s) is available in 2015, and PAM-4 chips with a single channel of 100Gb/s (1x100Gb/s) will be available in 2016. Optical transmitters based on externally modulated lasers (EML), directly modulated lasers (DML), and silicon photonics modulators, are becoming available in 2015 and 2016. Linear optical receivers and driver amplifiers, which benefit from coherent optical component development, are also becoming available in 2015 and 2016. Therefore, just like coherent detection is the key solution to long-haul systems, we believe that PAM-4 modulation would become one of the key solutions to short-haul systems.