In the early 1960s, Bell Laboratories developed time-division multiplexing (TDM) to maximize the amount of voice traffic carried  over a medium. Before multiplexing, each telephone call required its own physical link. This was an expensive and unscalable solution.

TDM is a signaling method that divides the bandwidth of a single link into a separate channels  or time slots. TDM transmits two or more channels over the same link by allocating a different time interval ( time slot ) for the transmission of each channel. In effect, the channels take turns using the link.

Time Division Multiplexing

TDM is a physical layer concept. It has no regard for the nature of the information that is being multiplexed onto the output channel. TDM is independent of the Layer 2 protocol that is used by the input channels.

TDM can be explained by an analogy to highway traffic. To transport from four roads to another city, you can send all the traffic on one highway lane if the feeding roads are equally serviced and traffic synchronized. So, if each of the four roads puts a car on the highway every four seconds, the highway receives one car each second. As long as the speed of all the cars is synchronized, no collisions occur. At the destination, the reverse happens: the cars are taken off the highway and are fed to the local roads by the same synchronous mechanism.

This is principle used in synchronous TDM when sending data over a link. TDM increases the capacity of the "transmission link" by slicing time into smaller intervals so that the links carries the bits from multiple input sources. This effectively increases the number of bits transmitted per second. With TDM, the transmitter and receiver both know exactly which signal is being sent.

  

A MUX  at the receiving end reassemble the TDM stream into the three separate data streams based on only the timing of the arrival of each bit. A technique called bit interleaving keeps track of the number and sequence of the bits from each specific transmission so that they can be quickly and efficiently reassembled into their original form upon receipt. Byte interleaving performs the same function, but because there are 8 bits in each byte, the process needs a bigger or longer time slot.

Statistical Time Division Multiplexing 

In another analogy, compare TDM to a train with 32 railroad cars. Each car is owned by a different freight company, and every day the train leaves with 32 cars attached. If one of the companies has a cargo to send, that car is loaded. If the company has nothing to send , the car remains empty but stays on the train. Shipping empty containers is not very efficient. TDM shares this inefficiency when traffic is intermittent, because the time slot is still allocated even when the channel has no data to transmit.

Statistical time-division multiplexing (STDM) is a variation of TDM that was developed to overcome this inefficiency. STDM uses a variable time slot length, allowing channels to compete for any free slot space.

TDM Examples: ISDN and SONET

An example of a technology that uses synchronous TDM is ISDN. ISDN basic rate interface (BRI) has three channels: two 64-kbps B  channels (B1 and B2) and a 16 -kbps D channel. The TDM has ten time slots, which are repeated in the sequence.

On a larger scale, the telecommunication industry uses the "SONET" or SDH standard for optical transport of TDM data. SONET, used in North America, and SDH used elsewhere, are two closely related standards that specify interface parameters, rates framing formats, multiplexing methods, and management for synchronous TDM over fiber.

It shows that an example  of statistical TDM. SONET/SDH takes n bit streams, multiplex them, and optically modulate the signal, sending it out using light-emitting device over fiber with a bit rate equal to (incoming bit rate) * n. Thus, traffic arriving at the SONET multiplexer from the four places at 2.5 Gbps goes out as a single stream at 4*2.5 Gbps, or 10 Gbps. This principle is illustrated in the figure which shows an increasein the bit rate by a factor 4 in time slot T.