DSLAM stands for Digital Subscriber Line Access Multiplexer and is a piece of equipment located at the telephone exchange. It allows customers to use their DSL line to access the wider network by combining their lines with others and sending them onto the telephone backbone network. An IP DSLAM takes Internet Protocol (IP) traffic and extracts it so it can join the providers IP network.
Most network traffic is now IP; even telephone conversations are digitized, encoded into IP, and sent across the network. An IP DSLAM is a necessary part of this process as it sorts the traffic coming from users and sends it on its way. It can be though of as the on-ramp to the IP highway.
Currently there are two main types of core network in the US. The older network is a mixture or analog and digital technologies and carries most of the voice traffic, and the newer IP network. The older network is a hybrid of old analog equipment, coupled with newer digital equipment all sharing the same space. This network has been around for years, and is upgraded as money and technology allow.
Many carriers are building brand new networks based entirely on IP. These consist of large optical fibers and routers that can carry hundreds of gigabytes of data every second, and allows for that traffic to be carried across it quickly. The majority of traffic is digital, so these networks can be used to carry the majority of the traffic as old networks are phased out. Digital traffic uses less space than analog, which means that the network can cope with more users and more traffic. An IP DSLAM is an important part of this process, as it takes digital signals early in the process, and allows the same network to carry more traffic, helping to make the carrier more money.
As an analogy, say someone drove to work one morning during rush hour when the highway was busy, and the car got stuck in traffic. It takes a while to get through, but eventually the person arrives at work. The next day everybody rides their motorcycle instead of taking their cars. They take up less space, so the highway can cope with more motorcycles than cars, and everybody gets to their destinations quicker. The car is traditional analog traffic, and the motorcycle IP or digital.
Traditionally, a DSLAM would pass the IP traffic to the core network, where it would be extracted and passed on to its destination. This meant every carrier needed lots of DSLAMS to cope with the demands of their users. An IP DSLAM extracts the IP traffic at the first telephone exchange. As IP traffic takes up less space than other traffic, each DSLAM can cope with more users. More users using less equipment means more savings for the carrier, while the user gets a faster connection.