• New Installs of 41,200 Lines; 94% Were "On-Switch"
• Total Lines in Service Increases to 122,300
• 58 New Collocations for a Total of 210
• Fully-Funded Business Plan with $706 Million Cash-on-Hand
• 3 New Markets in Service for a Total of 15
• Annualized Revenue Run Rate of Nearly $135 Million
• Acquisition of KIVEX.com
• 25 Collocations in Seven Markets Have DSL Capability
• Acceleration of Fiber Network Deployment

DALLAS, TEXAS, August 3, 1999 - Allegiance Telecom, Inc. (Nasdaq: ALGX), a competitive local exchange carrier (CLEC), today announced results for its second quarter. Allegiance reported second quarter revenues of $17.7 million, an increase of 77% over 1Q99 revenues of $10 million. Lines sold as well as lines installed continued to exceed plan, with new lines sold increasing from 50,000 in 1Q99 to 55,800 lines in 2Q99. Lines installed also showed rapid growth, with new lines installed increasing from 33,400 in 1Q99 to 41,200 in 2Q99--94% of the new installs were "on-switch." Bookings through June 30, 1999, resulted in an annualized recurring revenue run rate of $135 million.

"We are pleased to report another quarter of dramatic growth in revenue and customer line installations," said Royce Holland, chairman and chief executive officer of Allegiance Telecom. "Our continuing program to automate and scale our back office systems as well as our continued success in establishing electronic bonding with the Incumbent Local Exchange Carriers in most of our markets are the foundation for our successful operating results. In addition, the continued fast pace of growth of our network and collocation rollouts is fueled by our extremely strong financial position."

Network Rollout

Network rollout is proceeding on track, with 15 markets operational as of June 30, 1999, including Atlanta, Boston, Chicago, Dallas, Fort Worth, Houston, Los Angeles, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, San Francisco, San Jose and Washington, D.C. Allegiance recently initiated service in its 16th market, the San Diego metropolitan area.

Allegiance continued to see strong gains in its addressable market during the second quarter. As of June 30, 1999, the Company was collocated in 210 central offices for unbundled loops. This represents an addressable "on-switch" market of approximately 7.0 million local business access lines, an increase of 31% from 1Q99. In addition, Allegiance has 115 collocations that are in process.

During the second quarter, Allegiance accelerated its switch rollout by beginning with the installation of second switches in New York and Dallas to meet the very high demand in those markets--implementation was originally scheduled to begin in the second half of the year. In addition to these switches that are being deployed, the Company has 10 switches in operation, supporting the following markets: Atlanta, Boston, Chicago, Dallas/Fort Worth, Houston, Los Angeles/Orange County, New York/Northern New Jersey, Philadelphia, Oakland/San Jose/San Francisco and Washington, D.C. Allegiance is also in the process of installing switches in Baltimore and Detroit.

The continuing rapid growth of our voice, data and Internet traffic has resulted in an acceleration of our plans to deploy local fiber networks to replace existing leased bandwidth. During the second quarter, Allegiance completed the deployment of high-capacity SONET networks in New York City and Dallas using fiber acquired from Metromedia Fiber Networks. Construction has also begun in Houston on a similar network using fiber acquired from Metromedia. In addition, Allegiance is in the process of negotiating the acquisition of fiber in several additional local markets, which we plan to deploy over the next year to accommodate the rapid growth of traffic.

"Allegiance is one of the pioneers of the 'Smart Build' approach and the acceleration of our deployment of fiber optic networks is a result of our success in the market," said Dan Yost, president and chief operating officer of Allegiance Telecom. "We believe that our network cost structure is one of the lowest in the telecommunications industry."

Financial and Operational Highlights

Allegiance again had significant success in its sales efforts, with lines sold increasing from 50,000 in 1Q99 to 55,800 lines in 2Q99, an increase of 12% over 1Q99. Lines installed also showed rapid growth, with lines installed increasing from 33,400 in 1Q99 to 41,200 in 2Q99, an increase of 23% over 1Q99. Bookings through June 30, 1999, resulted in an annualized recurring revenue run rate of nearly $135 million.

The Company's recruitment of its sales force remains on track. Sales force, including managers, grew to 552 people, out of a total Allegiance employee base of 1,243, as of June 30, 1999.

Allegiance continues to use its capital to support the development of new markets, resulting in a second quarter EBITDA (earnings before interest, taxes, depreciation and amortization, excluding management ownership allocation charges and non-cash deferred compensation expenses) loss of $25.6 million and capital expenditures of $73.5 million which reflect the acceleration of second switches in Dallas and New York and the accelerated rollout of fiber networks.

DSL Rollout

At the beginning of the second quarter Allegiance announced plans to offer DSL services. The Allegiance DSL offering, known as AccessDirect DSL, delivers a wide range of high-speed data services for applications such as Internet access, electronic mail, e-commerce and bulk data transfer. Consistent with its strategy of serving as a "one-stop shop" for its customers, Allegiance is offering symmetric (equal upload and download speeds) DSL service to its medium-sized business customers to facilitate the convergence of the customer's voice, high-speed data and Internet traffic on one unbundled loop. For its smallest business customers, Allegiance will begin offering in the third quarter an asymmetric (higher download than upload speed) DSL service to provide primarily high-speed Internet access.

Allegiance began deployment of symmetric DSL equipment in seven markets in June. At the end of the quarter, equipment had been deployed in 25 Allegiance collocations, and we also installed what we believe to be the first commercial application of the new HDSL2 standard. (Note: The HDSL2 standard requires the use of only one unbundled loop, instead of two for the older HDSL standard.) We are currently conducting customer trials of the unsymmetric ADSL equipment and plan to initiate deployment in the third quarter. The Company believes that with the scope of its existing networks, the number of collocations it has in service and its extensive direct sales force, it is well positioned to commercialize DSL and bring its customers the tools they need to prepare for an e-commerce environment.

"We believe that DSL is one of the best enabling technologies to hit the CLEC space in a number of years, especially for the medium and small business market," said Holland. "In addition to improving gross margins, DSL should allow our customers to significantly upgrade their data transmission and Internet connections on a cost effective basis."

Acquisition of KIVEX.com

Allegiance's data, DSL and Internet services offerings were given a boost with the acquisition of KIVEX.com, an Internet service provider based in Bethesda, Maryland. KIVEX.com provides businesses in 22 markets with high-speed connections to the Internet, World Wide Web hosting, DSL connectivity and e-mail. KIVEX.com services are offered in over 200 multi-tenant office buildings. KIVEX.com currently provides data and Internet services to 1,400 small and medium-sized business customers. Over 90 percent of KIVEX.com's customers are located in markets where Allegiance has networks in operation or development. (The KIVEX.com transaction closed on June 30, 1999, therefore, KIVEX.com's numbers are not reflected in Allegiance's results.)

"It's clear to us that the addition of KIVEX.com's expertise in the data, DSL and Internet arenas will accelerate our combined package of telecommunications services," said Yost. "The geographic fit between the KIVEX.com customer base and our networks should allow us to rapidly realize significant synergies in terms of cross selling and network efficiencies.

Further Implementation of Electronic Bonding

Electronic bonding of Allegiance's back office systems with those of the Incumbent Local Exchange Carriers gives Allegiance the ability to significantly reduce the amount of time from initial order entry to installation. Instead of taking approximately 25 business days for a customer to switch local carriers (without electronic bonding), electronic bonding is the key to shortening that timeframe to approximately five business days.

During the second quarter, we achieved electronic bonding with Bell Atlantic North in Boston and with Southwestern Bell in Dallas. We are currently testing electronic bonding with Pacific Bell and are about to begin testing with Ameritech in Chicago and Bell Atlantic South. If successful, we expect to be in production with these companies during the third quarter of 1999. We also plan to begin testing with GTE and BellSouth during the fourth quarter of 1999. As we expected with the announcement of our unprecedented arrangement with Bell Atlantic North in January, our electronic bonding model has become a nationwide template for enhancing our ability to process customer orders more swiftly and accurately.

The lack of electronic bonding between facilities-based carriers has been widely recognized as the principal bottleneck in realizing the competitive local service marketplace envisioned by the Telecommunications Act of 1996.

Financing Update

On April 1, 1999, Allegiance completed a $225 million senior secured revolving credit facility maturing December 31, 2005 for a subsidiary of Allegiance Telecom, Inc. This revolving facility will be available, subject to satisfaction of certain terms and conditions, to provide financing for the acquisition, construction and improvement of telecommunications assets by our operating subsidiaries.

In late April, the Company completed the public offering of 14,027,400 new shares of its common stock at a price of $38.00 per share, raising gross proceeds of $533.0 million. After underwriters' fees and other expenses, Allegiance realized net proceeds of approximately $510.6 million.

"Allegiance ended the quarter with $706.7 million in cash and short-term investments--this excludes $50.6 million in restricted cash," said Thomas Lord, executive vice president of corporate development and chief financial officer. "When combined with our $225 million revolver, the Company is fully funded with nearly $1 billion in cash and liquidity to address all aspects of its 24 market business plan."

"We intend to aggressively deploy this significant liquidity base through our existing organic business plan as well as continue to use our cash and seek tactical acquisitions such as KIVEX," added Lord.

Regulatory Certifications

Allegiance is certified to provide competitive local exchange services in the District of Columbia and 13 states, including California, Colorado, Georgia, Illinois, New Jersey, New York, Maryland, Massachusetts, Michigan, Pennsylvania, Texas, Virginia and Washington State. In addition, the Company has two applications pending in Missouri and Florida.

Corporate Background

Allegiance Telecom, Inc. was founded in April 1997 by a management team led by Royce J. Holland, the former president and COO of MFS Communications Company, Inc., and Thomas M. Lord, former managing director of Bear, Stearns & Co. Inc., where he specialized in the telecommunications, information services and technology industries.

Allegiance offers businesses a complete package of telecommunications services, including local, long distance, international calling, high-speed data transmission and Internet services. Allegiance is targeting 24 major metropolitan areas in the U.S. with its "one-stop shopping" approach. The Company's web address is: www.allegiancetele.com.

Certain statements in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. The words "believes," "expects," "estimates," "anticipates" and "will be" and similar words or expressions identify forward-looking statements made by or on behalf of the Company. These forward-looking statements are subject to many uncertainties and factors which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Examples of such uncertainties and factors include, but are not limited to, the extent to which the Company can achieve "electronic bonding" with ILECs, the Company's ability to timely and effectively provision new customers and the Company's continued access to necessary capital. Additional factors are set forth in the Company's Annual Report on Form 10-K. The Company does not undertake any obligation to update or revise any forward-looking statement made by it or on its behalf, whether as a result of new information, future events or otherwise.