An inbound rate limiter will drop all traffic that it matches which exceeds the specified rate. For non-TCP traffic, you won't be able to obtain such traffic downstream of the limiter faster than it allows, but such traffic could still saturate and upstream inbound link even with the limiter.
For TCP traffic that exceeds the limiter's rate, the TCP source will eventually see the drops and reduce it's send window, which reduces it's average transmission rate. How much this helps on the upstream inbound link is highly variable. First, inbound packets have already crossed the link before they are dropped, second much depends on the number of flows and where they are in their congestion management cycle. For instance, many flows just starting in the beginning of their transmission can't go slower, i.e. the send rates remain about the same, but lost packets will just result in a retransmission; enough may drop the TCP session. Conversely a single TCP flow might be kept from filling the link.
Without knowing a little more about your network and what congestion you are trying to avoid, it's hard to describe the benefit.
This command will drop any traffic exceeding 1.696Mbps coming in on the interface to which it is applied. To me it seems a little odd to apply the command in this fashion unless you are trying to slow down all traffic for an overloaded link further inside your network. Otherwise you are setting the link's congestion point at 1.696Mbps. The rate-limit input command has an option to include an access-list to classify the traffic that is rate-limited, this is useful to prevent a group of users or applications from monopolizing your ISP connection.
access-list 101 permit tcp any any eq 554
int serial x/y
rate-limit input access-group 101 1696000 12500 12500 conform transmit exceed drop
This will limit all inbound RTSP streaming media traffic to 1.696Mbps, but not affect any other traffic. Guaranteed this will make you popular with your end users!
If the PVC bandwidth is not equal to the physical link bandwidth, it is highly recommended to configure a map class so the router knows the CIR. For example, if you have a 1.6Mbps PVC on a 2Mbps E1 circuit, you'd want the router to know the CIR on the PVC so it knows when congestion is occurring and can buffer accordingly. This only really affects outbound traffic, and while you could use a rate-limit output, I believe the frame-relay map-class would be more appropriate in this case.
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