We consider the effect of loss on quantum-optical communication channe
ls. The channel based an direct detection of number stales, which for
a lossless transmission Line would achieve the ultimate quantum channe
l capacity, is easily degraded by loss. The same holds true for the ch
annel based on homodyne detection of squeezed states, which also is ve
ry fragile to loss. On the contrary, the ''classical'' channel based o
n heterodyne detection of coherent states is loss-invariant. We optimi
ze the a priori probability for the squeezed-state and the number-stat
e channels, taking the effect of loss into account. In the low power r
egime we achieve a sizeable improvement of the mutual information, and
both the squeezed-state and the number-slate channels overcome the ca
pacity of the coherent-state channel. In particular, the squeezed-stat
e channel beats the classical channel for total average number of phot
ons N < 8. However, for sufficiently high power the classical channel
always performs as the best one. For the number-state channel we show
that with a loss eta less than or similar to 0.6 the optimized a prior
i probability departs from the usual thermal-like behavior, and develo
ps gaps of zero probability, with a considerable improvement of the mu
tual information (up to 70% of improvement at low power for attenuatio
n eta = 0.15). (C) 1998 Elsevier Science B.V.