  We present a model of an N-qubit channel where consecutive qubits experience
correlated random rotations. Our model is an extension to the standard
decoherence-free subsystems approach (DFS) which assumes that all the qubits
experience the same disturbance. The variation of rotations acting on
consecutive qubits is modeled as diffusion on the SU(2) group. The model may be
applied to spins traveling in a varying magnetic field, or to photons passing
through a fiber whose birefringence fluctuates over the time separation between
photons. We derive an explicit formula describing the action of the channel on
an arbitrary N-qubit state. For N=3 we investigate the effects of diffusion on
both classical and quantum capacity of the channel. We observe that
nonorthogonal states are necessary to achieve the optimal classical capacity.
Furthermore we find the threshold for the diffusion parameter above which
coherent information of the channel vanishes.
