Abstract: An ISDN gateway (GW, 100) dynamically allocates bandwidth by monitoring traffic at each destination queue and in response allocating or deallocating virtual B-channels. A long term allocation (LTA) algorithm is executed during usual traffic conditions to determine when, and for how long, virtual B-channels are to be allocated. During transient conditions, the gateway (GW, 100) executes a short term allocation (STA) algorithm. Bandwidth utilization is optimized by packaging data packets into trains that are transmitted to the destination when the train is completed and upon satisfaction of other conditions. Each train undergoes data compression by execution of a suitable compression algorithm.