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For mobile wireless systems with full frequency reuse, co-channel interference near the cell coverage boundaries has a significant impact on the signal reception performance. This paper addresses an approach to efficiently mitigate the effect of downlink co-channel interference when multi-antenna terminals are used in cellular environments, by proposing a signal detection strategy combined with a system-level coordination for dynamic frequency reuse. We demonstrate the utilization of multi-antennas to perform spatial demultiplexing of both the desired signal and interfering signals from adjacent cells results in significant improvement of spectral efficiency compared to the maximal ratio combining (MRC) performance, especially when an appropriate frequency reuse based on the traffic loading condition is coordinated among cells. Both analytic expressions for the capacity and experimental results using the adaptive modulation and coding (AMC) are used to confirm the performance gain. The robustness of the proposed scheme against varying operational conditions such as the channel estimation error and shadowing effects are also verified by simulation results.