As the name indicates, in guided lightwave systems, there is no contained medium or channel. The channel used is open, that is the space itself. In unguided lightwave systems, optical signals from a transmitter propagates in space. It is free to spread. Unguided lightwave systems are employed both in terrestrial and above earth atmosphere.
When employed in a terrestrial propagation system, the optical signal in unguided systems can deteriorate considerably by scattering within the atmosphere. Deterioration due to spreading of light is not a problem in free space optical communication above the earth atmosphere. Hence free space optics have its best use in inter-satellite communication. Unguided lightwave systems are not yet effectively developed for terrestrial optical communication.