Optical telecommunications systems use phase compensation interferometry wherein receiver units have interferometer configurations with path length differences identical to path length differences of arms in interferometer configurations at corresponding transmitter units. Faraday rotating mirrors are used to minimize sensitivity to polarization effects. A modified Michelson interferometer structure is used to provide optical signals which convert to electrical signals in a form allowing relatively easy demodulation. A demodulation circuit uses the property whereby two signals have a 90.degree. phase shift.