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Collisions are normal. Excessive collisions can indicate problems, but a flashing light won't give you a true indication of the percentage of collisions.
Also...
A router is not a replacement for a hub. A switch would be a replacement for a hub.
Routers are meant to move traffic from one network to another, whereas a hub (or switch) does NOT move traffic between different networks... it is meant to move traffic within a particular network/subnet.
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