Thats great you understood
Since modem is connected to internet in PPPoE mode we restart or reboot modem at 2.00 am so that a new internet connection session is started, in this process as you said all lights will go off except power and of course internet gets disconnected. when all lights become stable it reconnects to internet.
We are rebooting the modem just to disconnect and reconnect to internet at desired time.
So if your modem is configured in bridge mode you dont have to reboot modem sine you can connect and disconnect to internet through a dialer.
Now the modem is in PPPoE mode or Bridge mode...
If in PPPoE mode then you will have to reboot your modem at 2.05am