Large-scale networking of micro-satellites needs to meet the requirements of rapid interaction, information sharing and autonomous management, which requires low SWaP communication terminals for multi-point communication. We propose a physical layer network coding (PNC) architecture based on modulated retro-reflector (MRR) that can fulfill the new requirements in micro-satellites with symmetric channels. We evaluate performance of MRR PNC under Additive White Gaussian Noise (AWGN) channel with pointing errors. We obtain the impact of pointing error to the outage probability and bit error rate (BER) by theoretical calculation and numerical simulation. Parameters used are designed under joint constraints. Simulation results indicate the proposed scheme’s BER performance and outage probability can achieve better than \(10^{-10}\) level.