• 2Q01 Revenues of $124.1 Million - Increased by 17.2 Percent Compared with 1Q01 and 96.9 Percent Compared with 2Q00
• New Installs of 135,800 Lines and New Orders of 192,000 Lines
• Total Lines in Service Increases to 869,700
• 13 Markets Pre-Overhead EBITDA Positive in 2Q01, Driving Overall Company EBITDA Loss Margin from 28.3 Percent in 1Q01 to 22.7 Percent in 2Q01
• 53 New Colocations for a Total of 740, Addressing Approximately 19.1 Million Business Lines "On-Switch"
• Austin, Sacramento and Portland Service Initiated -- Allegiance's 30^th, 31^st and 32^nd Markets
• Electronic Bonding for Unbundled Loops in Operation for 95 Percent of Allegiance’s Addressable Market
• Completion of OSS Upgrades Will Improve Productivity for Second Half of 2001
• Significant Network Upgrades including Rollout of Metropolitan and East Coast Corridor Fiber Networks and Connection of Major Markets with OC-48 Lambdas in Process
• Allegiance Now Has 11 Markets with Facilities-Based Metropolitan Fiber Rings Operational

"I am pleased to report another successful quarter of significant top line growth. Even more important, we achieved this growth along with the rollout of three more markets while also reducing our EBITDA loss. In fact, our EBITDA loss margin improved by over 500 basis points sequentially from the first to the second quarter," said Royce J. Holland, chairman and CEO of Allegiance Telecom. "The OSS upgrade projects and fiber deployment activities that were completed in the second quarter along with ongoing system and network upgrade projects should facilitate continued EBITDA improvement in the second half of the year and reinforces the strength of our business model and clear path to profitability," he said.

With the addition of three new markets (Austin and Sacramento in May and Portland in June) Allegiance Telecom’s network rollout proceeded as forecasted. The Company had 32 markets operational at the end of 2Q01 including Atlanta, Austin, Baltimore, Boston, Chicago, Cleveland, Dallas, Denver, Detroit, Fort Lauderdale, Fort Worth, Houston, Long Island, Los Angeles, Miami, Minneapolis/St. Paul, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, Phoenix, Portland, Sacramento, St. Louis, San Antonio, San Diego, San Francisco, San Jose, Seattle, Tampa and Washington, D.C. White Plains, N.Y. was added in early July and three more markets are expected to become operational in 2001, bringing Allegiance's total to 36 markets.

Allegiance Telecom's robust gains in its addressable market continued during the second quarter, adding 53 new colocations. At the end of June, the Company was colocated in 740 central offices for unbundled loops, representing an addressable "on-switch' market of approximately 19.1 million local business access lines.

Allegiance now has 30 switches in operation, supporting the following markets: Atlanta, Austin, Baltimore, Boston, Chicago, Cleveland, Dallas/Fort Worth (2), Denver, Detroit, Houston, Los Angeles, Miami/Ft. Lauderdale, Minneapolis/St. Paul, New York /Long Island (2), Northern New Jersey, Orange County, Philadelphia, Phoenix, Portland, Sacramento, St. Louis, San Antonio, San Diego, San Francisco/Oakland, San Jose, Seattle, Tampa and Washington, D.C.

Allegiance Telecom posted a strong sales increase for the quarter, with lines sold increasing from 165,900 lines in 1Q01 to 192,000 in 2Q01, an increase of 15.7 percent compared with 1Q01 and an increase of 56.4 percent compared with 2Q00. Lines installed also showed noteworthy growth, with lines installed increasing from 126,200 in 1Q01 to 135,800 in 2Q01, a 7.6 percent increase in new installs compared to 1Q01 and an increase of 45.2 percent over 2Q00.

For the second quarter ended June 30, 2001, Allegiance Telecom had consolidated revenues of $124.1 million. This represents an increase of 17.2 percent as compared with 1Q01 and an increase of 96.9 percent over 2Q00. Allegiance continues to use its capital to support the development of new and existing markets, resulting in a second quarter EBITDA (earnings before interest, taxes, depreciation and amortization, excluding management ownership allocation charge and non-cash deferred compensation expenses) loss of $28.1 million and capital expenditures of $114.8 million. The Company continued on its path to profitability with EBITDA loss as a percent of revenue for the quarter at 22.7 percent, versus 28.3 percent in 1Q01 and 44.9 percent for 2Q00.

Gross margin remained stable for 2Q01 on a sequential basis at 51.0 percent and was up from 45.2 percent in 2Q00.

Gross margin continues to improve; for 1Q01, Allegiance Telecom's gross margin was 51.6 percent, up from 50.4 percent in 4Q00.

"Allegiance Telecom used approximately $156 million of its cash and short-term investments during the second quarter to further expand its operations, capital expenditures related to switching platforms, colocations, construction of its SONET fiber networks and its data network -- which supports the Company's product suite of local, long distance, data and Internet services -- and net interest expense," said Thomas M. Lord, Allegiance executive vice president of corporate development and chief financial officer. "At June 30, 2001, Allegiance had an undrawn committed credit facility of $500 million and more than $312 million of cash and short-term investments. We believe that this liquidity fully funds Allegiance's 36-market business plan," he said.

To demonstrate its progress toward profitability, Allegiance Telecom began reporting operating results in 4Q00 for nine of its markets that began service in 1998 or early 1999 that became pre- overhead EBITDA positive during the fourth quarter (before corporate overhead allocation). These nine markets are Dallas, New York, Atlanta, Fort Worth, Chicago, Los Angeles, San Francisco, Boston and Houston. In the first quarter of 2001, Philadelphia and San Diego turned pre-overhead EBITDA positive. During the second quarter of 2001, two additional markets, Baltimore and San Jose, also became pre-overhead EBITDA positive, moving Allegiance's total to 13 pre-overhead EBITDA positive markets.

In 2Q01, the nine early markets continued to show growth and margin improvements. New line installations increased by 57,281 lines, resulting in an improvement of 16.1 percent compared with 1Q01. Lines installed in these nine markets now total 482,661 for an increase of 75.7 percent compared to 2Q00 installed base of 274,740 lines. Revenue increased to $66.4 million, an increase of 3.4 percent compared with 1Q01 and 40.7 percent more than 2Q00. Gross margin improved to 60.7 percent of revenue. Pre-overhead EBITDA was a positive $17.3 million, increasing sequentially 21.1 percent. This $17.3 million represents a pre-overhead EBITDA margin of 26.1 percent versus 14.3 percent for 2Q00.

"The consistent performance of these nine markets in terms of revenue growth, and most notably pre-overhead EBITDA margin growth, demonstrates the Allegiance business plan is working as we anticipated," said Holland. "Allegiance Telecom's movement up the growth curve continues, cutting consolidated EBITDA loss margin from 28.3 percent in 1Q01 to 22.7 percent in 2Q01. We expect to see additional markets turning pre-overhead EBITDA positive during the remainder of 2001. Overall company EBITDA loss margins should continue to diminish throughout the year, setting up Allegiance to turn EBITDA positive during 2002."

During the second quarter, Allegiance made significant progress in upgrading its network with the lighting of metropolitan fiber rings. To date, 11 Allegiance markets (Austin, Dallas, Denver, Houston, New York, Northern New Jersey, Philadelphia, Portland, St. Louis, Seattle and Washington, D.C.) are served by fiber. These rings provide improved network capacity, operational efficiency, improved financial margins and route redundancy, further increasing the reliability of the Allegiance network. During the second half of the year, additional rings will be lit in 10 more Allegiance markets, with a year-end total of 21 markets served by fiber rings.

The Company also is announcing plans to upgrade its long-haul capacity network and is planning to replace leased DS-3 connections with the faster, more efficient OC-48 lambdas linking its largest markets across the country. Allegiance expects to begin the transition in the third quarter and complete the task by the end of 2001.

The Company is also in the process of lighting its fully redundant intercity fiber rings in the Northeast corridor linking its markets in Boston, New York, Long Island, Northern New Jersey, Philadelphia, Baltimore and Washington D.C. with a seamless, high capacity network. The transport capacity will enhance Allegiance's capability to integrate acquisitions and improve the company's ability to establish peering agreements as well as improving margins. "As a buyer taking advantage of favorable transport market conditions, Allegiance Telecom is building one of the least expensive and best performing Internet backbones in the industry," said Dan Yost, Allegiance Telecom president and chief operating officer. "And because it's created to better serve existing customers, this investment in a strategic network asset provides immediate returns with little or no risk."

Allegiance has always believed that the key to scaling the business and improving margins is an integrated and automated back office including the operations support systems (OSS) and business processes. The second quarter marked a milestone in that several major OSS upgrade projects were completed and integrated into the business processes, resulting in productivity improvements which should begin to be realized in the second half of 2001.

One of these projects which has been in process for over three years is electronic bonding with the incumbent local exchange carriers (ILECs) for the provisioning of unbundled loops. During the second quarter, Allegiance and Verizon completed electronic bonding for the Verizon South territory which includes the Allegiance Telecom markets of Northern New Jersey, Philadelphia, Baltimore and Washington, D.C. (and later this year, Pittsburgh, Pa.). This milestone virtually completes Allegiance’s goal of implementing electronic bonding with all of the territories served by the regional Bell operating companies, giving Allegiance Telecom an extensive, national electronic bonding capability covering about 95 percent of Allegiance's addressable market. The remaining areas which still require extensivemanual processing of provisioning orders are the old GTE territories which are now part of Verizon. These include the following Allegiance markets which represent about 5 percent of Allegiance’s addressable market: Tampa and some suburban areas in the Dallas, Southern California, Portland, and Seattle markets. Allegiance and Verizon have recently begun work on electronic bonding for these areas.

Allegiance also implemented a number of system upgrades to improve productivity in its back office operations. A significant upgrade in terms of scalability and productivity improvement is the rollout of the Allegiance Back Office Gateway, a "switchboard" or event manager that integrates multiple platforms and business events including billing activation and installations, thus streamlining the workflow process. Automated billing record creation and activation for unbundled loop products and features have eliminated manual data entry for billing, resulting in a seamless flow-through from provisioning to billing in all Allegiance markets and significantly improved data integrity for customer records. During the last half of the year, this functionality will be extended to broadband products andmove, add, and change activities.

Another major productivity improvement will result from the recent completion of the Automated Cutsheet and Firm Order Commitment (FOC) Upload System. By eliminating a series of labor intensive processes in the coordination of customer cutover information, Allegiance is significantly reducing premature cutovers and rescheduling of cutovers as well as eliminating a number of headcount additions as it continues to scale the business. The FOC Upload process interfaces directly with the electronic bonding gateways with the ILECs and automatically updates Allegiance's OSS data bases, thus eliminating significant manual entry of data and ensuring data integrity by eliminating keypunch errors.

"A number of key system automation projects were completed in the second quarter which should produce productivity improvements and facilitate the continued scaling of the installation process," said Tony Parella, Allegiance executive vice president. "As a result, we have already revised our second half budget which will result in a budget plan improvement for SG&A expenses and EBITDA margins. These improvements, as well as ongoing OSS upgrade projects, are key factors in our path to profitability."

Allegiance began the initial testing of the ADC Singl.eView™ billing system in June. The initial rollout is for wholesale broadband customers. Beginning in the fourth quarter 2001, Allegiance expects the enterprise-class billing system to be implemented on a market-by-market basis for new retail customers, providing increased flexibility in product packaging and improved billing and collections capabilities through more automated workflow. To avoid any disruptions to existing retail customers, Allegiance is taking a very conservative approach to the rollout of the ADC Singl.eView billing system and will not migrate existing customers to the new system until it has been thoroughly tested over a significant period of time for new customer additions.

Allegiance Telecom is certificated to provide local exchange services in 24 states and Washington D.C., including Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Minnesota, New Jersey, New York, Maryland, Massachusetts, Michigan, Missouri, Nevada, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Virginia, Washington State and Wisconsin.

Based in Dallas, Allegiance Telecom is a facilities-based integrated communications provider (ICP) offering 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 33 U.S. markets including: Atlanta, Austin, Baltimore, Boston, Chicago, Cleveland, Dallas, Denver, Detroit, Fort Lauderdale, Fort Worth, Houston, Long Island, Los Angeles, Miami, Minneapolis/St.Paul, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, Phoenix, Portland, Sacramento, St. Louis, San Antonio, San Diego, San Francisco, San Jose, Seattle, Tampa, Washington D.C. and White Plains, N.Y. The Company is targeting a total of 36 major metropolitan areas with its "one- stop shopping" approach.

Allegiance's common stock is traded on the Nasdaq National Market under the symbol ALGX.

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," "plans," "will be" and "forecasts" and similar words or expressions identify forward-looking statements made by or on behalf of the Company. These forward-looking statements were derived using numerous assumptions and are subject to many uncertainties and factors which may cause the actual results of the Company to be materially different from those stated in such forward-looking statements. Examples of such uncertainties and factors include, but are not limited to,the Company's ability to timely and effectively provision new customers; technological, regulatory or other developments in the industry; and the ability to develop and maintain efficient billing, customer service and information systems. Additional factors are set forth in the Company's SEC reports, including but not limited to the Annual Report on Form 10-K for the year ended December 31, 2000. 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.