The statement that is FALSE is B. The P-flag (Proxy-ARP/ND flag) is an attribute carried within the EVPN BGP Extended Community. Its purpose is to signal that the advertising Provider Edge (PE) router is capable of and willing to perform proxy-ARP/ND functions for hosts within the EVPN instance. This functionality is specific to Integrated Routing and Bridging (IRB) interfaces in EVPN VLAN-based services.

The service in the exhibit is an EVPN-VPWS (Virtual Private Wire Service), which is a point-to-point Layer 2 service. EVPN-VPWS does not involve Layer 3 routing or ARP/ND processing within the service. Therefore, the P-flag is not applicable, and PE3 would not set it to 1.

A. When the physical link between PE1 and CE1 fails, the corresponding Service Access Point (SAP) on PE1, which represents that attachment circuit, will transition to an operationally down state. This is standard behavior.

C. In an all-active multi-homing scenario, both PE1 and PE3 advertise an Ethernet A-D per EVI route for the service. When the link from PE1 to CE1 fails, PE1 withdraws its route. Consequently, the remote PE2 will only see the remaining route from PE3.

D. The Ethernet A-D per ES route is used for multi-homing functions like auto-discovery and designated forwarder election. Both PE1 and PE3 are part of the same Ethernet Segment (ES) and will advertise this route. A single attachment circuit failure does not cause the ES route to be withdrawn.

1. Nokia 7450 ESS, 7750 SR, 7950 XRS, and VSR Layer 2 Services and EVPN Guide: SR OS Release 21.10.R1, Section: EVPN-VPWS. The guide describes EVPN-VPWS as a point-to-point service without L3 functions, confirming that proxy-ARP/ND is not a relevant feature.

2. Nokia 7450 ESS, 7750 SR, 7950 XRS, and VSR Layer 3 Services Guide: SR OS Release 21.10.R1, Section: EVPN-IRB and Proxy-ARP/Proxy-ND. This section details the use of proxy-ARP/ND and the associated P-flag specifically for EVPN IRB interfaces, distinguishing it from other EVPN service types like VPWS.

3. RFC 9136: The IP and MAC-VRF-to-VRF Model for BGP/MPLS IP-VPNs, Section 4.4.1. This RFC defines the EVPN Extended Community and explicitly states: "Proxy-ARP/ND Flag (P-flag): 1 bit. If this flag is set to 1, it indicates that the advertising PE is willing to send proxy ARP/ND replies for the attached host." This function is tied to IP routing, which is not part of a VPWS service.

4. RFC 7432: BGP MPLS-Based Ethernet VPN, Section 8.2.2. This RFC specifies that upon failure of an attachment circuit in a multi-homed ES, the PE "MUST withdraw the associated Ethernet A-D per-EVI route(s)." This supports the reasoning for why option C is a correct statement of behavior.