An amplitude modulated optical communication system and method are disclosed that achieve bandwidth compression by making use of an n level amplitude modulation scheme in one or more frequency bands. A soft decision decoder is disclosed that provides at least two soft slicing levels between each signal level in the multiple level transmission scheme to define an "uncertainty" region therebetween. The soft slicing levels are used to evaluate the reliability of a given bit assignment. In addition to assigning a digital value based on the received signal level, one or more soft bits are assigned indicating a "reliability" measure of the output code.