• 1999 Revenues of $99.1 million - Increased by a Factor of 10 Compared With 1998
• New Installs of 60,300 Lines; New Orders of 75,400
• Total Lines in Service Increases to 241,700
• 67 New Collocations for a Total of 327, Addressing More Than 10 Million Business Lines "On Switch"
• 2 New Markets in Service for a Total of 19
• Expanded Business Plan Adding 12 New Markets
• Implementation of Electronic Bonding with Pacific Bell
• Initiated Development of Allegiance On-Line Business Center To Include Customized Internet Business Portal, Small Business Resource Center and Web-Based Platform for Applications Hosting

"1999 was a very successful year, highlighted by continued rapid growth, significant margin improvement and excellent execution in achieving our operational and financial targets," said Royce J. Holland, chairman and chief executive officer of Allegiance Telecom. "Significant achievements included the rollout of 10 new markets, the installation of almost two hundred thousand business access lines and revenue growth by a factor of ten. This continuing success in execution led to our announcement in January of a significant expansion of our original business plan aimed at continuing to build shareholder value," he said.

Network Rollout

Network rollout proceeded on track, with 19 markets operational at the end of 1999 including Atlanta, Baltimore, Boston, Chicago, Dallas, Detroit, 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. The Company initiated service in Denver during early February, 2000, and St. Louis is scheduled for the first quarter of 2000. The initial 24-market plan is on track to be completed by mid-year.

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. Due to its success in obtaining market share, Allegiance is accelerating the second phase of its smart build approach by deploying SONET fiber networks to replace short-term leased capacity in 16 additional markets, for a total of 19 markets (Allegiance already has fiber networks in operation in Dallas, Houston and New York City).

Additionally, Allegiance added long distance fiber capacity, signing long-term lease agreements for route diverse fiber connecting Boston, New York and Washington, D.C.

Allegiance Telecom continued to see strong gains in its addressable market during the fourth quarter. As of the end of December, the Company was collocated in 327 central offices for unbundled loops, representing an addressable "on-switch" market of approximately 10.1 million local business access lines, an increase of 19.8 percent from 3Q99.

By the end of 2001, the expanded business plan calls for total projected central office collocations of 990, up from 650, and a projected 33 percent increase (compared with the original plan) in the number of nonresidential access lines that can be addressed "on-switch" with the collocation footprint.

At the end of 1999, Allegiance had 15 switches in operation, supporting the following markets: Atlanta, Baltimore, Boston, Chicago, Dallas/Fort Worth (2), Detroit, Houston, Los Angeles/Orange County, New York/Northern New Jersey/Long Island (2), Philadelphia, San Diego, San Francisco/Oakland/San Jose and Washington, D.C. A Denver switch came on-line in early February, 2000; Allegiance is in the process of installing a switch in St. Louis and a switch serving Northern New Jersey.

Financial and Operational Highlights

Allegiance again had significant success in its sales efforts, with lines sold increasing from 69,800 in 3Q99 to 75,400 lines in 4Q99, an increase of 7.8 percent over 3Q99. Lines installed also showed growth, with lines installed increasing from 51,100 (not including 8,000 lines from the KIVEX.com acquisition) in 3Q99 to 60,300 in 4Q99, an increase of 18 percent in new installs compared with 3Q99. For the calendar year 1999, Allegiance sold 251,000 lines and installed 194,000 lines.

The Company's recruitment of its sales force remains on track. Sales force, including managers, grew to 707 people, out of a total Allegiance employee base of 1,784 as of December 31, 1999. Allegiance believes one of the keys to achieving its goals is the capturing and retaining of customers through a direct sales force.

For the fourth quarter and for the year ended December 31, 1999, Allegiance Telecom had consolidated revenues of $39.3 million and $99.1 million, respectively. Allegiance continues to use its capital to support the development of new markets, resulting in a fourth quarter EBITDA (earnings before interest, taxes, depreciation and amortization, excluding management ownership allocation charge and non-cash deferred compensation expenses) loss of $26.8 million and capital expenditures of $57.1 million. For 1999, Allegiance posted an EBITDA of negative $104.2 million and total capital expenditures of $273 million.

"During the fourth quarter, Allegiance used approximately $83.6 million of its cash and short-term investments to further fund its operations and capital expenditures related to switching platforms, collocations and its data network to support the Company's product suite of local, long distance, data and Internet services," said Thomas M. Lord, executive vice president of corporate development and chief financial officer. "At December 31, 1999, Allegiance had $526 million of cash and short-term investments."

"On January 27, 2000, we completed an offering of 6.6 million shares generating net proceeds of $665.6 million on behalf of the Company," said Lord. "Including the proceeds of this offering, Allegiance Telecom now has cash and marketable securities of $1.2 billion and remains fully funded to execute on its 36 market business plan."

Financing Update

In connection with the Allegiance expanded market business plan, the Company has obtained a commitment from Goldman Sachs Credit Partners L.P., Toronto Dominion (Texas), Inc., BankBoston, N.A., Morgan Stanley Senior Funding, Inc. and various other lenders to fully underwrite $500 million of senior secured credit facilities. The credit facilities consist of a $350 million revolving credit facility and a $150 million delayed draw term loan facility. The credit facilities are subject to customary conditions for a transaction of this type, including completion of definitive documentation and finalization of all terms and conditions. Allegiance expects to close these facilities in February 2000.

Implementation of Electronic Bonding with Pacific Bell

Allegiance Telecom continued to lead the industry in implementation of electronic bonding with incumbent local exchange carriers (ILEC). In November 1999, Allegiance announced a completed electronic gateway arrangement linking Allegiance operations support systems (OSS) with Pacific Bell. This was Allegiance's third electronic bonding arrangement with an ILEC.

These gateways permit Allegiance to create service requests online and monitor in real-time the entire provisioning and installation process. Electronic bonding of back office systems with the local ILEC significantly reduces the amount of time from initial order entry to installation. Instead of taking approximately 25 to 30 business days for a customer to switch local carriers (without electronic bonding), the new electronic linkages have the potential to shorten the timeframe to approximately five to ten business days.

The Allegiance model is a nationwide template for these types of interactions between CLECs and ILECs. Testing with Ameritech has just been completed and production will commence shortly. Testing and implementation with Bell Atlantic-South is next, followed by BellSouth, US West and GTE. Implementation of electronic bonding with all of the ILECs is expected to be completed by the end of this year.

Allegiance On-Line Business Center

In December, the Company announced a strategic alliance with Go2Net, Inc. to develop an on-line business center including the development of a customized Internet business portal, a small business resource center and a web-based platform for applications hosting.

The Allegiance customized Internet business portal provides a comprehensive Internet start page for Allegiance customers, incorporating customizable news, communication services (including e-mail, calendaring and instant messaging) and financial information. It provides direct access to branded finance, search and small business offerings. The small business resource center will be specifically tailored to the needs of Allegiance's small and medium sized business customers, including links to business, legal and financial tools and on-line access to business-to-business suppliers. The next phase will include application hosting, a business-to-business e-commerce platform (including the ability to do on-line transaction processing), virtual private networks and other advanced Internet applications aimed at the small and medium sized business market.

"The creation of our on-line business center fortifies Allegiance Telecom's position to deliver an expanded line of value-added business applications. These focused services are directed to the underserved medium and small business market, our specifically targeted customer base," said Dan Yost, Allegiance president and chief operating officer. "Bolstered by our large nationwide sales force, Allegiance's exclusive portal significantly expands our one stop shopping package. It leverages the expansion of Allegiance's bundled product and service offerings and state-of-the-art back office systems, while delivering a unique ability to combine a local platform, web hosting centers, e-commerce offerings and high-speed DSL connection options."

Regulatory Certifications

Allegiance is certified to provide competitive local exchange services in 15 states and the District of Columbia, including California, Colorado, Florida, Georgia, Illinois, New Jersey, New York, Maryland, Massachusetts, Michigan, Ohio, Pennsylvania, Texas, Virginia and Washington State. Allegiance currently has applications for CLEC authority pending in Arizona and Missouri.

Corporate Background

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 36 major metropolitan areas in the U.S. with its "one-stop shopping" approach. Allegiance is currently operational in the following 20 markets: Atlanta, Baltimore, Boston, Chicago, Dallas, Denver, Detroit, 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. 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, adjustments that may be made to the Company's preliminary financial and operating performance data upon the completion of the Company's annual audit for 1999, 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.