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In this paper results of mathematical analysis supported by simulation are used to find a theoretical limit for cell size reduction in mobile communication systems. Information capacity approach is used for the analysis. Attention is given to the active co-channel interfering cells. Because at microwave frequencies beyond 2 GHz, co-channel interfering cells beyond the first tier becomes dominant as the cell size reduces. We show that when the cell size limit is reached any further reduction in cell size will not increase the information capacity of the cellular network. A formula is derived for calculating the number of co-channel cells in subsequent tiers.