Error rate characteristics of various digital optical modulation-demodulation schemes are studied. The main concern is whether we can improve receiving power levels to achieve a prescribed error rate by employing a coherent optical transmission system in place of the presently available amplitude-shift-keyed (ASK) baseband direct detection system. The receiving power level reduction in various modulation-demodulation schemes is calculated by taking into account the optical carrier wavelength, data rate, photodetector performance, local oscillator power level, and number of levels in multilevel codes. The phase-shift-keyed (PSK) homodyne detection system requires the least receiving power. The improvement in the receiving power level compared to the conventional ASK baseband direct detection system is expected to be 16-22 dB at the carrier wavelength of

m, 31-36 dB at

m, and 35-40 dB at

m.