• 59,100 New Installs; 94 Percent "On-Switch"
• Total Lines in Service Increases to 181,400
• 50 New Collocations for a Total of 260
• 2 New Markets in Service for a Total of 17
• Acceleration of Business Plan
• Annualized Recurring Revenue Run Rate of $168 Million

"Our commitment to develop state-of-the-art back office systems and processes is paying off with our sixth consecutive quarterly results that meet or exceed the projections of our business plan," said Royce J. Holland, chairman and chief executive officer of Allegiance Telecom, Inc. "As a result, we announced on September 29 six key initiatives that are in progress to expand our networks and products, with an emphasis on Internet applications. The Company's excess liquidity position allows these enhancements to take place without the need to raise additional capital," Holland said.

Network Rollout

The Allegiance network rollout is proceeding as planned with 17 markets operational as of September 30, 1999, including Atlanta, Boston, Chicago, Dallas, Fort Worth, Houston, Long Island, Los Angeles, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, San Diego, San Francisco, San Jose and Washington D.C. In October, the Company initiated service in its 18th market, the Baltimore metropolitan area.

Allegiance continued to see strong gains in its addressable market during the third quarter. As of September 30, 1999, the Company was collocated in 260 central offices for unbundled loops. This represents an addressable "on-switch" market of approximately 8.4 million local business access lines, an increase of approximately 20 percent from 2Q99. Allegiance has more than 100 additional collocations currently in process.

During the third quarter, Allegiance completed installation of second switches in New York and Dallas, an acceleration of plan to meet higher than expected demand. As of the end of 3Q99, the Company had 13 switches in operation, supporting Atlanta, Boston, Chicago, Dallas/Ft. Worth, Houston, Los Angeles/Orange County, New York/Long Island/Northern New Jersey, Philadelphia, Oakland/San Jose/ San Francisco, San Diego and Washington D.C. The Baltimore market was opened in October with its own switch and a switch is currently being installed in Detroit for our planned fourth quarter opening of that market.

Financial and Operational Highlights

Allegiance continued its strong performance in line sales, posting 69,800 in 3Q99, compared to 55,800 in 2Q99, an increase of 25 percent. Lines installed grew dramatically to 59,100 from 41,200 in 2Q99, a 43 percent increase -- 94 percent of the new installs were "on-switch." The lines installed in the third quarter of 1999 reflect the approximately 8,000 lines added through Allegiance's acquisition of KIVEX.com, which was finalized on June 30, 1999. Bookings through September 30, 1999, resulted in an annualized recurring revenue run rate of $168 million. The Company continued to fortify its sales force, growing to 608 (including managers) out of a total Allegiance employee base of 1,525 as of September 30, 1999.

Allegiance continues to use its capital to support the development of new markets, resulting in a third quarter EBITDA (earning before interest, taxes, depreciation and amortization, excluding management ownership allocation charges and non-cash deferred compensation expenses) loss of $26.5 million and capital expenditures of $81.8 million which reflects acceleration of switch installations, collocation builds and rollout of fiber networks.

Enhancements to the Original Allegiance 24-Market Business Plan

Acceleration of Market Rollouts
In an acceleration of the Company's business plan, the target date for availability of Allegiance services in Cleveland, Denver, Miami, Seattle and St. Louis was moved forward by three months. The Company expects these markets to be open for business by the first half of 2000, sooner than the originally announced second half of 2000 target. In September, Allegiance received Public Service Commission authority to provide competitive local exchange services in Florida. The Company will initially deploy a network in Miami with services throughout the surrounding suburbs.

DSL Deployment
Allegiance completed deployment of asymmetric digital subscriber line (ADSL) services in selected areas of four cities -- New York, Chicago, Philadelphia and Washington D.C. -- for a total of 19 collocations in high capacity central offices. ADSL service, which provides faster download than upload speeds, was rolled out for sale to customers in these cities during late September.

During the third quarter, Allegiance deployed the industry's first commercial HDSL2 circuit. This new 1.544 Mbps T-1 service requires only a single copper wire pair rather than the two unbundled loops required for the older HDSL standard. Given the tremendous network technology advances and economic efficiencies of HDSL2 and the added benefit of being able to carry voice traffic on HDSL lines, Allegiance has decided to step up its deployment of HDSL2 capacity to all existing and future collocations. DSL capability will be deployed to 100 total collocations in high capacity central offices throughout the Company's operational markets during the remainder of 1999.


Acceleration of Collocation Builds
Due to Allegiance's outstanding sales record and the Company's expertise at efficiently building collocation facilities, it has become apparent that increasing the number of collocations for this year will help accommodate the tremendous growth in all of Allegiance's markets. The Company's revised plan calls for building out 325 collocations by year-end compared to the 300 collocations previously announced.


Acceleration of SONET-Fiber Network Deployment Earlier this year, we activated SONET-fiber networks in New York and Dallas, to replace leased capacity. Allegiance's line growth and the availability of dark fiber at favorable costs makes these networks more attractive than leasing capacity from the incumbent local exchange carriers. The Company's continuing growth and the emergence of multiple dark fiber suppliers have encouraged the Company to accelerate its plans to acquire dark fiber and deploy SONET equipment in additional markets.

Fiber network deployment is already underway in a third market, Houston, and Allegiance has begun negotiating dark fiber agreements in a number of additional markets due to the increase in customer traffic over its networks. Once customer volume reaches a certain level, the development of SONET-fiber networks (the second phase of Allegiance's "Smart Build" strategy) is a more cost-effective business model than short-term capacity leases. Allegiance is currently negotiating contracts with several potential dark fiber suppliers and plans to deploy SONET-fiber networks in an additional three to six markets by the end of the year 2000.

Expansion of Northern New Jersey Network Development is underway to expand Allegiance's existing Northern New Jersey network. This market has a high concentration of data intensive businesses and is a natural extension of the New York market, the Company's largest market based on addressable market potential. The expansion plan includes installation of a circuit switch and packet switches in Northern New Jersey to serve an additional 31 collocations in local exchange carrier central offices. A boost in sales personnel staffing will accompany this expansion, with a second New Jersey sales office scheduled to open next year

Expansion of Product Set Focused on Small-Medium Sized Business User
Over the coming months, Allegiance intends to announce a series of new data/Internet based products and services uniquely focused on small-medium sized businesses. The Company has dedicated additional resources, including capital and personnel, to focus on developing these products and services.

"With six consecutive quarters of meeting and exceeding the projections of our business plan and the surplus cash position created by our successful financing activities earlier this year, Allegiance is able to proceed with these accelerations and expansions of the plan," said Thomas M. Lord, chief financial officer and executive vice president of corporate development. "Due to Allegiance's excess liquidity position, none of these business plan enhancements require new capital generation."


Continued Implementation of Electronic Bonding
The capability of Allegiance's back office systems to electronically bond with those of the incumbent local exchange carriers provides the Company with the power to drastically reduce the elapsed time between initial order entry and final installation. Without electronic bonding, it can take 25 business days or more for a customer to switch local carriers. Adoption of electronic bonding compresses the elapsed order-to-activation time to as little as five business days. Allegiance's pioneering electronic bonding arrangement with Bell Atlantic North in New York and Boston, announced at the beginning of this year, has become the showcase model for processing customer orders more swiftly and accurately.

During 3Q99, Allegiance continued to utilize its electronic interface with Bell Atlantic North and with Southwestern Bell in Dallas. Testing with Pacific Bell in California was successfully completed during the quarter and the electronic data interface (EDI) is now in use there. An EDI testing program is currently in progress with Ameritech in Chicago and will begin shortly with Bell Atlantic South. It is anticipated that EDI testing with GTE and BellSouth will begin later in the fourth quarter or shortly after the first of the year.

The lack of electronic bonding between facilities-based carriers is generally accepted as the main stumbling block to implementation of the truly competitive local service marketplace envisioned by the authors of the Telecommunications Act of 1996.

Regulatory Certifications
Allegiance is certified to provide competitive local exchanges services in the District of Columbia and 14 states including California, Colorado, Florida, Georgia, Illinois, New Jersey, New York, Maryland, Massachusetts, Michigan, Pennsylvania, Texas, Virginia and Washington State. The Company has applications pending in Ohio and Missouri.

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.

Selected Operational Statistics