In this paper, we consider a variant of an M/M/c/c loss system with fluctuating server capacity. Given a set of primary inputs, such as arrival rate, service rate, and capacity fluctuation rate, we develop a detailed model using MRGP, such that blocking and dropping metrics can be calculated explicitly.To gain insight into performance implications of a stochastic capacity queue, we conduct an analysis on a simple, approximate model. We investigate the functional behaviour of the system, using both the approximate and the detailed model. The significance of results in the context of network performance evaluation and capacity planning is highlighted.