The signal your cell phone receives typically comes from a large microwave transceiver a few miles away. Now it can be supplied—over a short range, at least—by a device the size of a USB memory stick.

Two U.K. firms—PicoChip and Ubiquisys—have developed such pocket-sized, USB-powered devices, which connect to nearby cell phones using the same frequencies of a conventional tower.  The gadgets use the Internet connection of a computer or other device to link back to the wider cell network and relay calls or data. PicoChip’s is the size of a USB stick, while Ubiquisys’ design is the size of a small cell phone.

The devices are a shrunken form of “femtocell,” a scaled-down cell tower that some mobile carriers have pushed in the last two years as a solution for people with poor reception at home. Increasingly they are seen as a way to increase data rates, too. Until now, though, femtocells have been significantly larger—usually similar in size to a fixed-line broadband modem; they also require their own power connection.

“This is the world’s smallest 3G base station,” says Andy Gothard of PicoChip, which provides the chips at the heart of most femtocells sold worldwide, including AT&T’s MicroCell. PicoChip was able to make smaller femtocells by redesigning the main chip and reducing its power consumption to the 4.5 volts supplied by a USB connection, says Gothard. PicoChip’s most recent generation of chips in production measures two centimeters  on a side and are manufactured using a process that creates features no smaller than 65 nanometers. The new generation is just 12 millimeters square and is made with features as small as 40 nanometers.

“We have had interest from companies that offer fixed-line broadband and cable television,” says Gothard. These companies could distribute femtocells on behalf of a wireless carrier in return for payment for the Internet use of the devices.

Ubiquisys, which provides femtocells to carriers including Japan’s SoftBank, made a USB-powered femtocell to allow customers to sidestep the high cost of roaming on international networks. It works much the same as PicoChip’s device but comes with added functionality to deal with the complexity of differing wireless spectrum laws in different countries.

“Once plugged into a computer, it uses a combination of listening to nearby cellular base stations and looking up the IP address of the Internet connection to work out which country it is in,” says Keith Day, a vice president with Ubiquisys. The device needs to know where it is because it must obey laws governing wireless spectrum to avoid interfering with other wireless devices.

“To comply, it may broadcast over only a very short range,” says Day, “perhaps less than a centimeter.” In this case, a user must rest his phone right on top of the device to keep the connection, and use a headset or the loudspeaker to make and take calls. So far, prototypes that allow a European handset to be used in the U.S. have been developed and tested, says Day.

“Taking the whole base station and putting it onto a USB stick is a significant step forward,” says Aditya Kaul, practice director for mobile networks at ABI Research. “These are cheaper, more compact devices that can be distributed to customers and installed by them more easily.”

Ubiquisys’s idea of taking femtocells across borders to avoid roaming charges would benefit customers and carriers alike, adds Kaul. A user could avoid high roaming charges, while the wireless provider would be encouraging phone use that otherwise wouldn’t happen.

However, considerable regulatory challenges remain. “Operators would need to be able to guarantee that such a device was functioning legally, and wireless regulations are very complex,” says Kaul. “Careful arrangements would be needed for each country.” Japan provides a particularly challenging example:  there the law requires that an engineer accompany the installation of all cell-tower-like devices, no matter how small. “Today there is no way Ubiquisys’s device could operate there,” says Kaul.