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Emulation a dedicated physical link over a packet switched network

A virtual circuit (VC) is a means of transporting data over a data network, based on packet switching and in which a connection is first established across the network between two endpoints. The network, rather than having a fixed data rate reservation per connection as in circuit switching, takes advantage of the statistical multiplexing on its transmission links, an intrinsic feature of packet switching. A 1978 standardization of virtual circuits by the CCITT imposes per connection flow controls at all user to network and network to network interfaces. This permits participation in congestion control and reduces the likelihood of packet loss in a heavily loaded network. Some circuit protocols provide reliable communication service through the use of data retransmissions invoked by error detection and automatic repeat request (ARQ). Before a virtual circuit may be used, it must be established between network nodes in the call setup phase. Once established, a bit stream or byte stream may be exchanged between the nodes, providing abstraction from low level division into protocol data units, and enabling higher level protocols to operate transparently. An alternative to virtual circuit networks are datagram networks.

Connection oriented transport layer protocols such as TCP may rely on a connectionless packet switching network layer protocol such as IP, where different packets may be routed over different paths, and thus be delivered out of order. However, it is possible to use TCP as a virtual circuit, since TCP includes segment numbering that allows reordering on the receiver side to accommodate out of order delivery.

Data link layer and network layer virtual circuit protocols are based on connection oriented packet switching, meaning that data is always delivered along the same network path, i. e., through the same nodes. Advantages with this over connectionless packet switching are:
Bandwidth reservation during the connection establishment phase is supported, making guaranteed quality of service (QoS) possible. For example, a constant bit rate QoS class may be provided, resulting in emulation of circuit switching. Less overhead is required since the packets are not routed individually and complete addressing information is not provided in the header of each data packet. Only a small virtual channel identifier (VCI) is required in each packet. Routing information is only transferred to the network nodes during the connection establishment phase. The network nodes are faster and have higher capacity in theory since they are switches that only perform routing during the connection establishment phase, while connectionless network nodes are routers that perform routing for each packet individually. Switching only involves looking up the virtual channel identifier in a table rather than analyzing a complete address. Switches can easily be implemented in ASIC hardware, while routing is more complex and requires software implementation. However, because of the large market of IP routers, and because advanced IP routers support layer 3 switching, modern IP routers may today be faster than switches for connection oriented protocols.

Switched virtual circuits (SVCs) are generally set up on a per call basis and are disconnected when the call is terminated; however, a permanent virtual circuit (PVC) can be established as an option to provide a dedicated circuit link between two facilities. PVC configuration is usually preconfigured by the service provider. Unlike SVCs, PVC are usually very seldom broken/disconnected. A switched virtual circuit (SVC) is a virtual circuit that is dynamically established on demand and is torn down when transmission is complete, for example after a phone call or a file download. SVCs are used in situations where data transmission is sporadic and/or not always between the same data terminal equipment (DTE) endpoints. A permanent virtual circuit (PVC) is a virtual circuit established for repeated/continuous use between the same DTE. In a PVC, the long term association is identical to the data transfer phase of a virtual call. Permanent virtual circuits eliminate the need for repeated call set up and clearing. Frame Relay is typically used to provide PVCs. ATM provides both switched virtual connections and permanent virtual connections, as they are called in ATM terminology. X.25 provides both virtual calls and PVCs, although not all X.25 service providers or DTE implementations support PVCs as their use was much less common than SVCs