A Layer 2 circuit is a point-to-point Layer 2 connection that transports traffic by means of Multiprotocol Label Switching (MPLS) or another tunneling technology on the service provider network. The Layer 2 circuit creates a virtual connection to direct traffic between two CE Services Routers across a service provider network. The main difference between a Layer 2 VPN and a Layer 2 circuit is the method of setting up the virtual connection. As with a leased line, a Layer 2 circuit forwards all packets received from the local interface to the remote interface.
On the interface communicating with the other PE router, you must specify MPLS and IPv4, and include the IP address. For the loopback interface, you must specify inet, and include the IP address. For IPv4, you must designate the loopback interface as primary so it can receive control packets. Because it is always operational, the loopback interface is best able to perform the control function.
On the PE router interface facing the CE router, you must specify a circuit cross-connect (CCC) encapsulation type. The type of encapsulation depends on the interface type. For example, an Ethernet interface uses ethernet-ccc. The encapsulation type determines how the packet is constructed for that interface.
On the CE router interface that faces the PE router, you must specify inet (for IPv4), and include the IP address. You also specify a routing protocol such as Open Shortest Path First (OSPF) which specifies the area and IP address of the Services Router interface.
With this information, the Services Routers can send and receive packets across the circuit.