Optical systems usually use two levels of optical power. A binary ‘1’ is signified by the higher power level and a binary ‘0’ by the lower power level. When these power levels are symbolized as P1 and P0, P1 > P0 and the unit of measure is watts.

The relationship between the power used to transmit a binary ‘1’ and the power to transmit a binary ‘0’ is expressed as the extinction ratio (re).

The efficiency with which the optical power transmitted is controlled over the fiber-optic channel is described by the extinction ratio. Three different ways are used to define the extinction ratio:

1. Power measurement = 10 * Log (P1/ P0)
2. Linear ratio = P1 / P0
3. Percentage = (P0 / P1) * 100.

Small variations in the extinction ratio makes a relatively big difference in the power needed to maintain a constant bit error rate (BER). The performance of an optical link will therefore be affected by variations in the extinction ratio.

For a perfect transmitter, P0 is zero and this would make re infinite. With most optical transmitters however, the available optical power at the low level is finite. This means that P0 > 0. (Lasers are normally biased so that P0 is near the laser threshold).

For the receiving side two important decisions must be taken:

1. When the received data should be sampled
2. Decide if the sampled data should be read as a binary 0 or 1.

The decision circuit used by the receiver checks the sampled voltage against a set value known as the “decision threshold’. The associated circuitry consists of a data recovery block (CDR) and a clock. P0 is ideally equal to zero, which will make the optimal extinction ratio infinite.

When the extinction ratio is however not optimum, the power transmitted must be increased so that the same bit error rate can be maintained at the receiver. The increase in transmitted power needed because of the finite value of the extinction ratio is called the “power penalty.”

To maintain a constant BER, a relatively big difference in the power is required for small changes in the extinction ratio.

This effect is especially noticeable when the value of the extinction ratio is less than seven. If the value of the extinction ratio changes by 1, a corresponding change of 10% is required in the power of the laser. This additional power required is known as “power penalty”. Note that increasing the power of a laser will result in its MTBF reducing.