A system and method for reducing power consumption in a Passive Optic Network (PON). The system comprises an optical line terminal (OLT), an optical network unit (ONU), a traffic-detection module configured to detect status of traffic to and from the ONU, and a power-management module configured to place the ONU in sleep mode based on the detected traffic status. The ONU includes transmitting and receiving components that are selectively powered down during the sleep mode based on a type of traffic in the ONU.