Note that this term applies to an optical carrier (which is typically described by its wavelength), whereas frequency division multiplexing typically applies to a radio carrier (which is more often described by frequency). However, since wavelength and frequency are inversely proportional, and since radio and light are both forms of electromagnetic radiation, the distinction is somewhat arbitrary.
In practice, WDM systems are built by combining signals from multiple different single-wavelength end devices onto a single fibre.
The device that joins the signals together is known as a multiplexer, and the one that splits them apart is a demultiplexer. With the right type of fibre you can have a device that does both at once, and can function as an optical add-drop multiplexer.
The first WDM systems combined two signals and appeared around 1985. Modern systems can handle up to 160 signals and can expand a basic 10 Gbit/s fibre system to a theoretical total capacity of over 1.6 Tbit/s over a single fiber pair.
WDM systems are popular with telecommunications companies because they allow them to expand the capacity of their fibre networks without digging up roads again more than necessary which is extremely costly. By using WDM and optical amplifiers, they can accommodate several generations of technology developement in their optical infrastructure without having to overhaul the backbone network. All they have to do is to upgrade the multiplexers and demultiplexers at each end.
This is often done by using optical-to-electrical-to-optical translation at the very edge of the transport network, thus permitting interoperation with existing equipment with optical interfaces.
Early WDM systems were expensive and complicated to run. However, recent standardization and better understanding of the dynamics of WDM systems has made WDM much cheaper to deploy. The market has segmented into two parts, "dense" and "coarse" WDM.
Dense WDM (DWDM) is generally held to be WDM with more than 8 active wavelengths per fibre, with systems with fewer active wavelengths being classed as coarse WDM (CWDM).
As of 2003, CWDM devices have dropped in price to the point where they are similar in price to end-user equipment such as Ethernet switches.
The introduction of the ITU-T G.694.1 frequency raster in 2002 has made it easier to integrate WDM with older but more standard SONET systems. (I don't have the details to hand, but I believe it specifies a 200 GHz frequency raster, with 100 GHz channel spacing as a refinement).
Today's DWDM systems use 50 GHz channel spacing.
DWDM systems are significantly more expensive than CWDM because the laser transmitters need to be significantly more stable than those needed for CWDM. In addition, DWDM tends to be used at a higher level in the communications hierarchy, and is therefore associated with higher modulation rates, thus creating a smaller market for DWDM devices with very high performance levels, and corresponding high prices.
Optical receivers, on the other hand, tend to be wideband devices, with the wavelength selectivity at the receive end provided as part of the optical demultiplexer.
See also
WDM in practice
Dense and coarse WDM
The original version of this article was based on FOLDOC, with permission