In the example shown in the first figure, there are three sources of information carried in turn down the output channel. First, a chunk of information is taken from each input channel. The size of this chunk may vary, but typically it is either a bit or a byte at a time. Depending on whether bits or bytes are used, this type of TDM is called bit-interleaving or byte-interleaving.

Each of the three input channels has its own capacity. For the output channel to be able to accommodate all the information from the three inputs, the capacity of the output channel must be no less than the sum of the inputs.

In TDM, the output timeslot is always present whether or not the TDM input has any information to transmit. TDM output can be compared to a train with 32 railroad cars. Each is owned by a different freight company and every day the train leaves with the 32 cars attached. If one of the companies has product to send, the car is loaded. If the company has nothing to send, the car remains empty, but it is still part of the train.

TDM is a physical layer concept, it has no regard for the nature of the information that is being multiplexed onto the output channel. TDM is independent of the Layer 2 protocol that has been used by the input channels.

One TDM example is Integrated Services Digital Network (ISDN). ISDN basic rate (BRI) has three channels consisting of two 64 kbps B-channels (B1 and B2), and a 16 kbps D-channel. The TDM has nine timeslots, which are repeated. This allows the telco to actively manage and troubleshoot the local loop as the demarcation point occurs after the network terminating unit (NTU).

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