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We report a particular implementation of a quantum cryptographic device operating at 1540-nm wavelength and involving interference between phase-modulated sidebands produced by a pair of phase modulators in the transmitting and receiving modules. The principle of operation is described in terms of both classical and quantum optics. The method has been demonstrated experimentally using a strongly attenuated semiconductor laser diode. Single photon interference has been obtained with a fringe visibility greater than 90%, indicating that the system can be used for quantum key distribution.