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This article combines the concepts of ergodic capacity and capacity versus outage for fading channels, and explores variable-rate transmissions under a service outage constraint in a block flat-fading channel model. A service outage occurs when the transmission rate is below a given basic rate. We solve the problem of maximizing the expected rate subject to the average power constraint and the service outage probability constraint. When the problem is feasible, the optimum power policy is shown to be a combination of water filling and channel inversion allocation, where the outage occurs at a set of channel states below a certain threshold. The service outage approach resolves the conflicting objectives of high average rate and low outage probability.