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Layer 2 Tunneling Protocol Version 3 is a draft version of L2TP[?] that is proposed as an alternative protocol to MPLS for encapsulation of multiprotocol[?] Layer 2 communications traffic over IP networks. Like L2TP, L2TPv3 provides a "pseudo-wire[?]" service, but scaled to fit carrier requirements.

L2TPv3 can be regarded as being to MPLS what MPLS is to ATM: a simplified version of the same concept, with much of the goodness achieved with a fraction of the effort, at the cost of losing some technical features considered less important in the market. In the case of L2TPv3, the features lost are traffic engineering features considered important in MPLS. However, there is no reason why these features could not be re-engineered in on top of L2TPv3 in later products.

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