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Keith,
VSL can be run up to distances of 40km so from a technical perspective, you can achieve what your asking. Just ensure your design is as redundant and diverse from a path perspective as possible to avoid split brain.
Jacques,It's a shot in the dark, but can you verify the MTU end to end? OTV marks each packet that egresses the Join interface with the DF bit which will be dropped should it need to be fragmented. I'm curious if there is a consistent MTU both inside...
