Mobile IP provides the following alternative modes for the acquisition of a care-of address:
A foreign agent provides a foreign agent care-of address through its agent advertisement messages. In this case, the care-of address is an IP address of the foreign agent. The foreign agent is the endpoint of the tunnel and, on receiving tunneled datagrams, de-encapsulates them and delivers the inner datagram to the mobile node. In this mode, many mobile nodes can share the same care-of address. This sharing reduces demands on the IPv4 address space and can also save bandwidth, because the forwarded packets, from the foreign agent to the mobile node, are not encapsulated. Saving bandwidth is important on wireless links.
A mobile node acquires a co-located care-of address as a local IP address through some external means, which the mobile node then associates with one of its own network interfaces. The address might be dynamically acquired as a temporary address by the mobile node, such as through DHCP. The address might also be owned by the mobile node as a long-term address for its use only while visiting some foreign network. When using a co-located care-of address, the mobile node serves as the endpoint of the tunnel and performs de-encapsulation of the datagrams tunneled to it.
If a mobile node is using a co-located care-of address, the mobile node must be located on the link identified by the network prefix of this care-of address. Otherwise, datagrams destined to the care-of address are undeliverable.