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The Fourier transform data communication system is a realization of frequency-division multiplexing (FDM) in which discrete Fourier transforms are computed as part of the modulation and demodulation processes. In addition to eliminating the bunks of subcarrier oscillators and coherent demodulators usually required in FDM systems, a completely digital implementation can be built around a special-purpose computer performing the fast Fourier transform. In this paper, the system is described and the effects of linear channel distortion are investigated. Signal design criteria and equalization algorithms are derived and explained. A differential phase modulation scheme is presented that obviates any equalization.