MPLS allows most packets to be forwarded at Layer 2 (the switching level) rather than having to be passed up to Layer 3 (the routing level). Each packet gets labeled on entry into the service provider's network by the ingress router. All the subsequent routing switches perform packet forwarding based only on those labels—they never look as far as the IP header. Finally, the egress router removes the label(s) and forwards the original IP packet toward its final destination.
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The label determines which pre-determined path the packet will follow. The paths, which are called label-switched paths (LSPs), allow service providers to decide ahead of time what will be the best way for certain types of traffic to flow within a private or public network.
Service providers can use MPLS to improve quality of service (QoS) by defining LSPs that can meet specific service level agreements (SLAs) on traffic latency, jitter, packet loss and downtime. For example, a network might have three service levels -- one level for voice, one level for time-sensitive traffic and one level for “best effort” traffic. MPLS also supports traffic separation and the creation of virtual private networks (VPNs) virtual private LAN services (VPLS) and virtual leased lines (VLLs).
MPLS got its name because it works with the Internet Protocol (IP), Asynchronous Transport Mode (ATM) and frame relay network protocols; any of these protocols can be used to create an LSP. It was created in the late 1990s to avoid having routers waste time by having to stop and look up routing tables. A common misconception is that MPLS is only used on private networks, but the protocol is used for all service provider networks -- including Internet backbones. Today, Generalized Multi-Protocol Label Switching (GMPLS) extends MPLS to manage time division multiplexing (TDM), lambda switching and other classes of switching technologies beyond packet switching.
How an MPLS network works
This diagram illustrates how a simple MPLS network works.
This networking tutorial from Michael Cavanaugh explains the advantages of MPLS.