When you put a hardware loopback plug on a serial to test it, why does the router see it as a loopback? With the show int serial command, you will see -----serial up, line protocol up (loopback mode)----- Of course it needs to see it as loopback otherwise the router wouldn't operate and allow loopback tests. But what part of the digital signals specifically tell the router that what it sent out has just come back? It can't be the carrier detect because that could be interpreted as a carrier detect from any csu/dsu. Maybe a timing issue on the return signal, but sounds like the keepalives are being interpreted here somehow? Someone know the details of this? Help.
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