The GSM system of today is evolving towards smaller cells and higher traffic capacity. The need for microcell and even picocell systems will be greatly increased in the near future. One of the most important factors will then be to provide high traffic capacity and to provide an easy way of performing frequency planning for the system operator. In this paper we present results from system simulations based on the GSM recommendation phase two. We show that the use of power regulation in both up- and downlink in combination with discontinuous transmission (DTX) and slow frequency hopping makes it possible to decrease the frequency reuse distance below 3/9 whilst maintaining system performance. Results from simulations with different frequency reuse distances are presented. System characteristics such as capacity, quality and robustness are evaluated and compared to a fixed plan reference system without frequency hopping or DTX. >