It always stopped for visual contacts for me, even running 2048 TC. Heck, I've had it stop in time for me to dive to avoid an attacking plane from 1024 or 2048x.
Raised periscopes helped real subs on the surface but have no effect on ours.
I've never paid a lot of attention to the radio reports, since most of the them pertain to contacts so far away that you can't intercept them anyway. I concentrate on completing my missions (something not present or necessary in SH3) so that I'm allowed to keep my command at the end of the cruise. So I'm getting to my patrol area not looking for any distractions.
All observations are also true in 1.5.
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