Abstract: A system and method for operating a cellular communication system is disclosed wherein frequency reuse of available carrier frequencies is maximized, thereby maximizing system traffic capacity. The invention includes an outer cell grid generated by a plurality of base station transceivers connected to a common network controller. Within the grid of outer cells is at least one overlapping sub-grid of inner cells that may be generated by the same base stations as the outer cells, or which may be generated using separate base station transceivers located within the outer cell. At least two frequency reuse patterns are applied to the cells, one pattern for the outer cells and another, tighter pattern for the inner cells. The inner cells are defined and limited by a predetermined threshold co-channel interference level (C/I), the interference emanating from adjacent inner cells operating at the same frequencies.