Details First Phase of Enhancements to Original 24-Market Business Plan

DALLAS, TEXAS, September 29, 1999--Allegiance Telecom, Inc. (Nasdaq: ALGX) today pre-announced certain results from its third quarter and, at the same time, detailed the first phase of enhancements to its original 24-market business plan.

Allegiance ended 3Q99 with strong operational and financial trends: the preliminary estimate of revenues is approximately $30-31 million and the preliminary estimate of lines installed is between 58,000-60,000. This line count includes the integration of the KIVEX.com acquisition (as of 6/30/99 when we closed the acquisition, KIVEX had approximately 8,000 lines installed).

Given Allegiance's continued strong operational momentum and ability to execute its business plan, the Board of Directors and management decided during the third quarter to enhance and accelerate the Company's original business plan with the deployment of six key initiatives. None of the business plan enhancements require new capital due to the Company's excess liquidity position.

"We are expecting another solid quarter of performance," said Royce J. Holland, chairman and CEO of Allegiance Telecom. "As a result of what is now six consecutive quarters of excellent execution of our business plan, and our surplus cash position, created by our successful financing activities earlier this year, Allegiance is proceeding with both geographic and product expansions to its 24-market business plan. The primary driving force behind these expansions is our desire to create a company with a technology-independent platform that can accommodate the development of broadband technology and services. Consistent with our financing philosophy, all six initiatives are pre-funded to free cash flow positive using our excess liquidity."

ENHANCEMENTS TO ORIGINAL 24-MARKET BUSINESS PLAN

Acceleration of Market Rollouts-- Businesses in Cleveland, Denver, Miami, Seattle and St. Louis will have the opportunity to experience a choice in telecommunications services sooner than originally expected. Allegiance is accelerating the opening of these five markets by three months. The Company now plans to be operational in these markets by June 30, 2000, versus the original date of October 1, 2000.

Acceleration of DSL Deployment--Allegiance is deploying HDSL2 capability to 100 collocations in high capacity central offices throughout our operational markets during 1999. In addition, ADSL capability is being deployed to a total of 19 collocations in Chicago, New York, Philadelphia and Washington, D.C. this year. After reviewing the network technology advantages, economic efficiencies and the added benefit of being able to carry voice traffic on HDSL lines, the Company has decided to step up its deployment of HDSL capability to all existing and future collocations.

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


Acceleration of SONET-Fiber Network Deployment-SONET-fiber networks were activated earlier this year in New York and Dallas replacing leased capacity due to Allegiance's line growth and the availability of dark fiber at favorable costs. The Company's continuing growth and the emergence of multiple dark fiber suppliers have incentivized the Company to accelerate its plans to acquire dark fiber and deploy SONET equipment in additional markets. 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 New York, our 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 sales office opening during 2000.

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. In September of this year, Allegiance closed a stock purchase agreement with Vulcan Ventures, the investment organization for Paul Allen. As a result of Vulcan Ventures' investment in Allegiance, the two companies have been exploring alliances and joint ventures to enhance Allegiance's product portfolio of data, Internet and e-commerce applications and provide a state-of-the-art distribution channel for Vulcan's portfolio companies.

"The broad array of Internet content and e-commerce services of the Vulcan portfolio companies, when combined with the significant distribution capability of the network and large direct sales force of Allegiance should be a powerful force in the growth of Internet applications and services in the medium and small business market," said Dan Yost, president and chief operating officer of Allegiance Telecom.

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. The Company's preliminary estimates of its third quarter 1999 revenues and line installations are also forward-looking statements. 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, in the case of the third quarter 1999 estimates, the actual results achieved by the Company as finally determined after the close of such quarter and the preparation of the financial statements therefore. 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.