modem lights
(AA, CD, HS, MR, OH, RD, SD, and TR)

If you have an external modem, those flashing or steady lights tell you what's happening in the ongoing "handshaking" or interaction between your computer (with its Universal Asynchronous Receiver/Transmitter or UART microchip) and the modem. Or, more formally, to use the RS-232C serial standard terms, between the Data Terminal Equipment (DTE) interface and the Data Communication Equipment (DCE) interface.

Modem LightMeaning
AA (auto answer) The modem is ready to respond to an incoming call (assuming a communication program is also ready to handle the call). Since this light can be off even when the modem is ready, it's not useful.
CD (carrier detect) This simply indicates that the computer and the modem have recognized each other and that a carrier connection is established. If a second call is received, carrier detect may be temporarily interrupted and, depending on a number of factors, the first connection may be dropped or lost.
HS (high speed) If on, indicates that the modem is ready to transfer data at its highest speed. Since this is often the case, this light is also not very useful.
MR (modem ready) If on, indicates that your modem is ready to operate.
OH (off hook) If on, tells you that the phone line is ready for use.
RD (receive data) When flashing on, indicates that the modem is receiving data or signals from a remote computer.
SD (send data) When flashing on, indicates that the modem is sending data or signals to another computer.
TR (terminal ready) When on, indicates that your computer's communications program is active. If it's not on, either the program or your computer may not be working.

This term was suggested by Paul Ruffolo.

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