This paper presents a fully electrical 40-Gb/s time-division-multiplexing (TDM) system prototype transmitter and receiver. The input and output interface of the prototype are four-channel 10-Gb/s signals. The prototype can be mounted on a 300-mm-height rack and offers stable 40-Gb/s operation with a single power supply voltage. InP high-electron mobility transistor (HEMT) digital IC's perform 40-Gb/s multiplexing/de-multiplexing and regeneration. In the receiver prototype, unitraveling-carrier photodiode (UTC-PD) generates 1 Vpp output and directly drives the InP HEMT decision circuit (DEC) without any need for an electronic amplifier. A clock recovery circuit recovers a 40-GHz clock with jitter of 220 fspp from a 40-Gb/s nonreturn-to-zero (NRZ) optical input. The tolerable dispersion range of the prototype within a 1-dB penalty from the receiver sensitivity at zero-dispersion is as wide as 95 ps/nm, and the clock phase margin is wider than 70° over almost all the tolerable dispersion range. A 100-km-long transmission experiment was performed using the prototype. A high receiver sensitivity [-25.1 dBm for NRZ (27-1) pseudorandom binary sequence (PRBS)] was obtained after the transmission. The 40-Gb/s regeneration of the InP DEC suppressed the deviation in sensitivity among output channels to only 0.3 dB. In addition, four-channel 40-Gb/s wavelength-division-multiplexing (WDM) transmission was successfully performed.