- By applying video smoothing techniques to real-time video transmission, the peak rate and rate variability of compressed video streams can be significantly reduced. Moreover, statistical multiplexing of the smoothed traffic can substantially improve network utilization. In this paper we propose a new smoothing scheme, which exploits statistical multiplexing gain that can be obtained after smoothing of individual video streams. We present a new bandwidth allocation algorithm that allows for responsive interactivity. The local re- smoothing algorithm is carried out using an iterative process.