This paper analyzes the performance of the capacity controlled radio system under a frequency selective fading environment. This system controls the number of modulation levels according to the number of active subscribers. In the analysis, we consider the capacity controlled system either with or without adaptive equalizer. As the results of analysis, it is clarified that the system is superior to the conventional fixed capacity system, and can be considered as a good countermeasure for multi-path fading. And it is found that there exists a synergistic effect due to capacity controlling and adaptive equalizing.