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The authors investigate semi-analytically the optimized system performance limitation in an SCM-WDM passive optical network (PON) in the presence of cross phase modulation (XPM) and group velocity dispersion (GVD). A general expression for electrical average crosstalk noise power due to XPM and GVD was derived to measure the system performance for increasing number of WDM channels. Using the expression, we show that XPM and GVD causes crosstalk in the system and imposes a power penalty as the WDM channels increases for a given channel spacing and modulating frequency. These results are extended to show that the system can be optimized to achieve a minimum BER of 10-9 by controlling the channel spacing and modulating frequency as the number of WDM channels increases.