A method for dynamically allocating bandwidth among ATM cells and packets scheduled for output from an aggregation multiplexer of a transport-layer device configured to multiplex both ATM cells and packets onto the same channel of an optical fiber. The method includes local control and relative priority lookup of incoming ATM cells and packets to support output decision. When compared to currently employed methods, the required level of coordination with the receiving circuit for dynamic bandwidth allocation is substantially lower, thereby reducing operational complexity for network operators and latency for critical data when reallocating bandwidth.