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We propose a Modulated Retro-Reflector (MRR) based Physical-Layer Network Coding (PNC) framework for space two-way relay (TWR) optical communications. MRR PNC simplifies the end node's design by replacing pointing, acquisition and tracking mechanisms which require large size, weight, and power (SWaP) consumption. Each end node modulates its data on top of the interrogating beam from the relay node so that the two end nodes' frequencies are synchronized and there is no carrier frequency offset between the two end nodes and the relay. However, the transmitted signal based on the interrogating beam and twice the channel fading leads to noise aggregation. We analyze the impact of this noise aggregation by deriving the bit error rate (BER) for MRR PNC and performing simulations in Gamma-Gamma fading channels. The simulation results show that MRR PNC has a 3 dB optical signal noise ratio penalty compared with MRR &#x201C;point-to-point&#x201D; systems. The overall system throughput of MRR PNC is 99% higher than the traditional non-network-coded scheme in the &#x2265;6 dB (for BPSK, &#x2265;9 dB for QPSK) signal noise ratio regime. We propose using low-density parity-check (LDPC) codes to mitigate the problem of the degradation of the BER caused by the noise aggregation in MRR PNC. Our simulation results show that a rate 1/2 LDPC code can achieve 2 dB coding gain on BER 10<sup>-3</sup>. We show that the asynchrony penalty is 3 dB on BER 10<sup>-3</sup> compared with a synchronous system. The implication is that when channel coding is used, the system can still work. Our findings show that MRR PNC can double the system throughput while keeping low values of SWaP, is feasible for space TWR optical communications.

Modulated Retro-Reflector-Based Physical-Layer Network Coding for Space Optical Communications