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The evolution of the Ethernet passive optical network (EPON) to the enhanced 10G-EPON standard looks poised to maintain its position as the leading fiber to the home technology worldwide. Fair bandwidth allocation will be a challenge in the near future in plants where 1G and 10G customer premises equipment coexists. In this paper we propose a distributed algorithm, distributed dynamic scheduling for EPON (DDSPON), to dynamically allocate the bandwidth requested by the user equipment with quality of service (QoS) constraints. The proposed algorithm is scalable and simple to re-configure, which facilitates a smoother transition from legacy 1G to 10G networks. By using the DDSPON, enhanced optical network units (ONUs) will take full advantage of the 10 Gb/s rate while legacy 1G ONUs maintain their service level agreement; as a result, the individual performance is maximized for both groups of ONUs. We also present an analytical model to evaluate the algorithm performance in a coexistent 1G/10G network. Finally, we also illustrate the enhancement of the DDSPON to provision the QoS to different services under the DiffServ architecture. Analysis and simulation results validate the effectiveness of the proposed mechanisms.