• Blockbuster September Results In Strong Quarterly Performance Despite Verizon Work Stoppage
• Record Level Of Line Sales And Installs
• Closes Acquisition Of Web Hosting Company And Rolls Out Web Office Product

Allegiance Telecom ended 3Q00 with strong operational and financial trends. Based on preliminary information, the Company estimates that it sold between 130,000 and 145,000 lines and installed between 90,000 and 92,000 lines during this quarter. From an operations perspective, Allegiance added 77 new collocations, bringing the Company's total collocations to 552. Allegiance Telecom estimates that for the third quarter 2000, it had consolidated revenues of at least $80 million. This represents a quarter-to-quarter growth rate of at least 27 percent from 2Q00 and 150 percent from 3Q99.

Allegiance Telecom's preliminary results demonstrate continued improvement in gross margin. The Company expects its gross margin for the third quarter to increase from the 45.2 percent rate posted in the second quarter 2000. Allegiance remains on target for its year-end 27 market buildout plan and has continued capital expenditures in support of its network. Allegiance anticipates third quarter capital expenditures of $115 to $125 million.

Allegiance Telecom remains in the enviable position of having cash on hand of approximately $860 million. This cash, together with the $500 million committed under the Company's credit facility, fully funds the Company's business plan through cash flow break even.

"Allegiance Telecom demonstrated strong operational and financial results despite the impact of the Verizon work stoppage," said Royce J. Holland, chairman and CEO of Allegiance Telecom. "The Company managed an unprecedented level of activity across its operations during the month of September to mitigate the impact of this work stoppage. We believe these results confirm that our business plan and ability to execute it remain as strong as ever," said Holland.

Acquisition of Virtualis Systems, Inc.
Further complementing its end user Internet and data initiatives, Allegiance Telecom today announced an important step forward in adding a suite of data products and enhanced services through the acquisition on September 28, 2000, of Virtualis Systems, Inc., a Los Angeles-based web hosting company and applications service provider (ASP).See separate press releases for details on Virtualis acquisition and Allegiance's Web Office product roll-out.

During the quarter, Allegiance also concluded successful settlement negotiations with Sprint Communications with regard to long distance access charges. The Company's dispute with AT&T regarding access charges continues and the Company cannot predict the results or timing of a resolution of this dispute.

In September, Allegiance Telecom began offering service in Minneapolis/St. Paul, the Company's 25th market. Service will commence in Tampa Bay/St. Petersburg and Phoenix during fourth quarter 2000, and Allegiance plans to add nine more markets in 2001.

Based in Dallas, Allegiance Telecom is a facilities-based competitive local exchange carrier (CLEC) that offers businesses a complete package of telecommunications services, including local, long distance, international calling, high-speed data transmission and Internet services. Allegiance is currently operational in 25 U.S. markets including: Atlanta, Baltimore, Boston, Chicago, Cleveland, Dallas, Denver, Detroit, Fort Worth, Houston, Long Island, Los Angeles, Miami, Minneapolis/St. Paul, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, St. Louis, San Diego, San Francisco, San Jose, Seattle and Washington D.C. The Company is targeting 36 major metropolitan areas with its "one-stop shopping" approach. The Company's web address is: www.allegiancetele.com. Allegiance's common stock is traded on the Nasdaq National Market under the symbol ALGX.