Solidifies Its Product Offerings in Web Hosting and Integrated Services

DALLAS, Oct. 3, 2000 - Allegiance Telecom, Inc. (Nasdaq: ALGX), a competitive local exchange carrier headquartered in Dallas, Texas, today announced that on September 28, 2000, it acquired privately-held Virtualis Systems, Inc., a leading Web hosting company and applications service provider (ASP) based in North Hollywood, Calif. Terms of the deal were not disclosed.

Founded in 1996, Virtualis Systems has more than 40,000 hosted domains and offers a proprietary suite of 25 e-business management software applications, enabling business owners to create, manage and grow their on-line presence. Web hosting is offered via dedicated and virtual servers; Virtualis has more than 4,000 customers and over 80 employees. Among its service offerings are Virtualis HiRize^TM, a complete site management toolset and Virtualis CartSnap^TM, a shopping cart creation tool for e-commerce applications. The company's proprietary software tools are used by 45,000 affiliates in more than 180 countries.

"The rapidly growing world of e-commerce has had a profound impact on our customers as they use the Internet to grow their businesses," said Royce Holland, chairman and CEO of Allegiance Telecom, Inc. "With this acquisition, Virtualis brings an extremely attractive customer base to Allegiance, serving small and medium-sized businesses with web hosting and an outstanding site management software package. Combining Virtualis' service offerings and experience with ours will further solidify Allegiance Telecom as the complete 'one-stop shop' for all of the communication needs of small and medium-sized businesses," he said.

Since its founding in 1997, Allegiance Telecom has rapidly become one of the leading facilities-based competitive local exchange carriers (CLECs) in the U.S. Allegiance provides its business customers with a complete package of telecommunications services, including local, long distance, international calling, high-speed data transmission and Internet services and e-commerce offerings. The company is targeting 36 major metropolitan areas with its "one-stop shopping" approach.

"Becoming part of Allegiance Telecom means Virtualis will have access to resources to continue our explosive growth while operating within one of today's most innovative and aggressive communication providers," said Chris Lyman, CEO and co-founder of Virtualis. "Today's small to medium-sized business market needs a complete solution to help grow their businesses. Our combination of phone service, Internet access, and other Internet services as well as Web hosting present a true 'one-stop shop' for the small to medium-sized business owner."

Lyman will continue to spearhead Virtualis and serve as vice president of Allegiance Telecom, reporting to Dan Yost, president and chief operating officer of Allegiance Telecom.

The Virtualis acquisition is Allegiance Telecom's third Internet-related purchase in 2000 as the company expands its hosting and e-commerce presence for its targeted business customers. Earlier this year, Allegiance acquired two regional Internet service providers (ISPs): InterAccess in Chicago and CONNECTnet in San Diego. InterAccess is one of the leading regional ISPs in the U.S. with more than 17,000 customers. CONNECTnet is a leading supplier of digital subscriber lines (DSL) in the San Diego metropolitan area. Both of these acquisitions provide significant cross-selling opportunities for an integrated package of communications services.

Allegiance Telecom is currently operational in the following 25 U.S. markets: 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 27 total markets by the end of this year and 36 total markets by the end of 2001. Allegiance Telecom's Web address is: www.allegiancetele.com, and its common stock is traded on the Nasdaq National Market under the symbol ALGX.

Virtualis Systems, Inc. (www.virtualis.com) is a Web host and applications service provider (ASP) that helps small businesses make an Impossibly Easy^TM transition to the Web via a powerful suite of applications and responsive customer service. Virtualis develops and maintains applications to create and manage Web sites, seamlessly integrates hosting and e-commerce, and maintains a strong focus on small and medium-sized businesses.