• Revenues of $63.0 million - Increased by 33 Percent Compared With 1Q00 and 256 Percent Compared with 2Q99
• New Installs of 81,100 Lines - Increased by 97 Percent Compared With 2Q99; New Orders of 122,800 Lines
• Total Lines in Service Increases to 407,800
• 80 New Collocations for a Total of 475, Addressing Approximately 13.23 Million Business Lines "On Switch"
• Service Initiated in St. Louis, Cleveland, Seattle and Miami, Total of 24 Markets
• Acceleration of Internet/Data Platform with Three Initiatives: (1) Acquisition of Two Regional ISPs, (2) Rollout of E-Commerce and Business Resource Center Products, and (3) Introduction of Softswitch Technology

"This is the ninth consecutive quarter that Allegiance has met or exceeded major operational and financial targets," said Royce J. Holland, chairman and chief executive officer of Allegiance Telecom. "This was our first quarter with sales exceeding 100,000 lines, a major milestone for the Allegiance sales organization and a testament to the effectiveness of our nationwide direct sales force and an operations support system that has been recognized as the best in the industry. During a milestone second quarter, Allegiance Telecom completed its initial 24 market rollout on schedule and we significantly accelerated the growth of our Internet/data platform with three key initiatives," he said.

Network Rollout

Allegiance's network rollout proceeded on track, with 24 markets operational at the end of 2Q00 including Atlanta, Baltimore, Boston, Chicago, Cleveland, Dallas, Denver, Detroit, Fort Worth, Houston, Long Island, Los Angeles, Miami, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, St. Louis, San Diego, San Francisco, San Jose, Seattle and Washington, D.C. Allegiance has now completed on time its accelerated rollout schedule for the Company's initial 24 market plan.

In early January 2000, Allegiance announced the addition of 12 new markets to its original market plan and the expansion of a number of existing networks. The Company expects to be operational in 27 markets by the end of 2000 and in 36 markets by the end of 2001.

Strong gains in the addressable market continued for Allegiance during the second quarter. At the end of June, the Company was collocated in 475 central offices for unbundled loops, representing an addressable "on-switch" market of approximately 13.23 million local business access lines, an increase of 12 percent from 1Q00.

At the end of 2Q00, Allegiance had 20 switches in operation, supporting the following markets: Atlanta, Baltimore, Boston, Chicago, Cleveland, Dallas/Fort Worth (2), Denver, Detroit, Houston, Los Angeles/Orange County, Miami, New York/Northern New Jersey/Long Island (2), Philadelphia, St. Louis, San Diego, San Francisco/Oakland/San Jose, Seattle and Washington, D.C. Additional switches will be commissioned in Northern New Jersey, Orange County and San Jose during 3Q00.

Financial and Operational Highlights

Allegiance Telecom again posted solid numbers for its sales efforts for the quarter, with lines sold increasing from 95,600 lines in 1Q00 to 122,800 in 2Q00, an increase of 28 percent compared with 1Q00 and an increase of 55 percent compared with 2Q99. Lines installed also showed significant growth, with lines installed increasing from 72,600 in 1Q00 to 81,100 in 2Q00, a 12 percent increase in new installs compared to 1Q00 and an increase of 97 percent compared with 2Q99. When adding to these numbers the 12,400 lines in service in the two acquired Internet Service Providers, CONNECTnet and InterAccess, Allegiance now has 407,800 lines in service.

Personnel recruitment efforts are robust, with the Company's sales force (including managers) growing to 1,115 people, out of a total Allegiance employee base of 2,548 as of June 30, 2000. A key element of Allegiance's business plan is the on-going development of a successful direct sales force in each of the Company's operational markets.

For the second quarter 2000, Allegiance Telecom had consolidated revenues of $63.0 million, an annual increase of 256 percent from 2Q99. Gross margin continued to improve to 45.2 percent. 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 non-cash compensation expense) loss of $28.3 million and capital expenditures of $99.6 million.

"Allegiance Telecom used approximately $126.8 million of its cash and short-term investments during the second quarter to further expand its operations and capital expenditures related to switching platforms, collocations and its data network which supports the Company's product suite of local, long distance, data and Internet services," said Thomas M. Lord, Allegiance executive vice president of corporate development and chief financial officer. "At June 30, 2000, Allegiance had more than $962 million of unrestricted cash and short-term investments."

Acceleration of Internet/Data Platform

To meet the increasing demand for Internet access, high speed data transmission and other enhanced services for the Small and Medium-sized Enterprise (SME) market, Allegiance accelerated the growth of its Internet/data platform in the second quarter. This expanded deployment includes increased market share, new products, and network growth with a focus on the following three key initiatives.

1. Accelerated growth of the SME customer base through continued internal growth augmented by the acquisition of two regional Internet Service Providers (ISPs).
2. Rollout of the Allegiance E-Commerce and Business Resource Center products.
3. Deployment of softswitch technology augmenting the existing Allegiance data and Internet backbone.

These initiatives are described in more detail below.

Acquisition of Regional ISPs -- InterAccess (Chicago) and CONNECTnet (San Diego)

During the second quarter, Allegiance Telecom acquired two regional ISPs: InterAccess in Chicago and CONNECTnet in San Diego.

Founded in 1993 at the very start of the Internet age, InterAccess is one of the larger independent regional ISPs in the United States with more than 17,000 customers and over 80 employees. InterAccess pioneered the offering of digital subscriber lines (DSL) commercially and now offers Internet, DSL and web hosting solutions throughout the Chicago metropolitan area. Operations include 24-hour technical support, a 24-hour network operation center, multi-backbone connectivity, and complete local dial-up locations.

CONNECTnet is a regional ISP based in San Diego with more than 4,000 customers and over 20 employees. The CONNECTnet product line consists of DSL and dedicated services, hosting solutions and dial-up access. Customers are concentrated in the San Diego metropolitan area with a small customer base located in Orange County, California.

"The integration of these two regional ISPs into our company produces excellent synergies and economies of scale," said Holland. "For instance, CONNECTnet was able to use new collocation cabinets in the Allegiance switch facility in San Diego to accommodate customer growth, instead of seeking space on the open market. There are multiple opportunities for the cross-selling of products and services to the combined business customer base of the companies. Allegiance will continue to look at similar accretive acquisitions that accelerate our mission of serving small and medium-sized enterprises," he said.

E-Commerce Package and Business Resource Center

On May 3, 2000, Allegiance Telecom unveiled a new, easy-to-use E-Commerce Package,

designed especially for small and medium-sized enterprises. This complete turnkey E- Commerce Package brings big business advantages to smaller companies — enterprises that don't

have extensive capital or the resources of a full-time information technology department. Bundled in a single user-friendly solution, the new Allegiance Telecom E-Commerce Package provides businesses with everything needed to easily market their products and services on-line.

Allegiance also introduced its new Business Resource Center, providing easy access to a wide variety of business-focused websites. This comprehensive web listing of business services is designed to save time for users searching the Internet. Allegiance's Business Resource Center includes one-click, frequently updated information on ordering business equipment and supplies, legal advice, trademark searches, government contracts and other areas of specific interest to businesses.

These newly announced initiatives are the second phase of Allegiance Telecom's On-line Business Center, a complete family of business services available to all Allegiance Telecom customers. From basic Web site hosting to automating applications for sales, customer support and other business activities, the Allegiance On-line Business Center is designed to help propel companies into the rapidly expanding universe of conducting business via the web. The first phase, announced earlier this year, featured the Allegiance Enterprise Portal, a customized Internet business gateway."E-commerce is the future of business and we are providing our customers with a foundation for building their own unique presence in this fast-growing wave of economic activity," said Dan Yost, Allegiance president and chief operating officer. "The third quarter will bring more enhancements to Allegiance's On-Line Business Center, all designed to create a vibrant climate for small and medium-sized enterprises to succeed and prosper."

Softswitch Deployment in Dallas

In May, Allegiance Telecom announced its first deployment of Nortel-based softswitch technology as a complement to its existing network infrastructure in the Dallas market. Based on equipment already placed in its collocations and central offices and the use of advanced softswitch technology, Allegiance Telecom can now utilize efficient packet switching — in addition to the traditional circuit-switched technology already deployed. This advanced switching technology will be systematically rolled out to other Allegiance markets as well.

Managed modem services are offered to Allegiance's existing ISP customers from the softswitch platform, saving switch capacity for voice customers on the traditional circuit-switched network. Allegiance's DSL service supports voice and data services on either a packet or circuit-switched infrastructure. Plans are to continue expansion of softswitch capabilities using technology from a variety of vendors including Cisco Systems, Lucent Technologies, Nortel Networks and others.

"Traditional circuit switching has worked well in providing voice services for our business customers. Additional packet switching will allow for greater capital efficiencies and accelerated, aggressive deployment of enhanced services for our customers," said Yost. "Softswitch technology is the next step in the evolution of Allegiance's smart build strategy in constructing a cost-effective and customer-oriented network infrastructure. The complementary circuit and packet-switch platform will allow Allegiance Telecom to efficiently provide an integrated package of communications services to small and medium-sized businesses."

Recognition of OSS Excellence

Allegiance Telecom's implementation of a state-of-the-art operations support system (OSS) was lauded as the best application in the Best Built Public Network or Service/OSS category at the third annual SUPERQuest awards, held in June at the SUPER COMM 2000 Conference and Exhibition at the Georgia World Congress Center. Allegiance's OSS allows the company to "electronically bond" with incumbent local exchange carriers (ILECs). This directs provisioning of access lines through an automated process, reducing cycle time and eliminating the errors and costs of a manually processed system. With the advanced system, Allegiance has reduced the time required to switch customers from ILEC service from 30-45 days (manually) to 10-15 days with electronic bonding.

Regulatory Certifications

Allegiance Telecom is certificated to provide competitive local exchange services in 19 states and the District of Columbia, including Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Minnesota, New Jersey, New York, Maryland, Massachusetts, Michigan, Missouri, Ohio, Pennsylvania, Texas, Virginia and Washington State. Allegiance currently has applications for CLEC authority pending in North Carolina and Oregon.

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 Telecom offers businesses a complete package of telecommunications services, including local, long distance, international calling, high-speed data transmission and Internet services. Allegiance is targeting 36 major metropolitan areas in the U.S. with its "one-stop shopping" approach. Allegiance Telecom is currently operational in the following 24 markets: Atlanta, Baltimore, Boston, Chicago, Cleveland, Dallas, Denver, Detroit, Fort Worth, Houston, Long Island, Los Angeles, Miami, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, St. Louis, San Diego, San Francisco, San Jose, Seattle and Washington, D.C. The Company's web address is: www.allegiancetele.com. Allegiance's common stock is traded on the Nasdaq National Market under the symbol ALGX.

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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," "will be" and "plans" 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, the Company's continued access to necessary capital and the potential adverse impact of state and federal regulatory developments. 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.