• Maintains Guidance on EBITDA, Capital Expenditures and Cash Burn
• Anticipates Approximately 5 Percent Adjustment to 2001 Revenue Guidance
• Continues To See Strong Demand for Integrated Voice and Data Services

DALLAS, September 26, 2001 -- Allegiance Telecom, Inc. (Nasdaq: ALGX), today pre-announced preliminary results for its third quarter ending September 30, 2001, and updated its guidance for the remainder of 2001. Based on preliminary information, the Company estimates that it will have sold between 180,000 and 190,000 lines and installed between 135,000 and 140,000 lines during this quarter. Allegiance Telecom expects to report consolidated revenues of approximately $135 million for the third quarter 2001. This represents a quarter-to-quarter growth rate of about 9 percent from 2Q01 and 69 percent from 3Q00. The Company also estimates that its EBITDA (earnings before interest, taxes, depreciation and amortization) loss for the quarter will be approximately $26 million, an improvement of approximately $2 million from the prior quarter.

Allegiance Telecom's preliminary results demonstrate continued improvement in EBITDA margin, capital expenditures and cash burn. EBITDA loss margin is expected to improve from 23 percent posted in the second quarter of 2001 to an EBITDA loss margin of better than 20 percent for the third quarter. Allegiance remains on target for its year-end completion of its entire 36- market buildout plan and has continued capital expenditures in support of its network. Allegiance anticipates 2001 capital expenditures of approximately $365 million. The Company remains in the enviable position of having cash on hand of approximately $540 million, after giving effect to its recent draw of $350 million under its $500 million committed credit facility.

Allegiance is maintaining all of its guidance for 2001 other than revenue, which it expects to be approximately 5 percent below the previous guidance number of $550 million for the year. Although the Company is still developing its 2002 budget, it expects 2002 revenue of at least $800 million and 2002 capital expenditures between $225 to $250 million, with EBITDA breakeven occurring in the second half of 2002 as has been previously forecast.

"I believe we have seen unprecedented irrationality in our stock valuation in recent months and this has only intensified in the past two weeks," said Royce J. Holland, chairman and chief executive officer of Allegiance Telecom. "As we discussed at the end of last quarter, two of our non-core product offerings, web hosting and wholesale managed modem ports, have experienced much slower growth than in prior periods. We continue to offer these services as a complement to our core end user business, but we will not be seeking to grow them to the extent we had in the past. In addition, the tragic events of September 11, 2001 will have a short-term negative impact on our top line revenue growth and we expect to see this reflected in reduced September and October growth rates."

"In terms of EBITDA, however, stronger than expected margins in our core retail business are offsetting reduced bottom line contributions from non-core offerings. As a result, we are reaffirming our EBITDA guidance," said Holland. "Our long-term fundamentals and financial condition remain rock solid and the opportunity to better serve the small and medium sized business communications customers remains as large as ever. We are projecting strong top line percentage revenue growth for this year in the mid-80s, revenue growth in 2002 in excess of 50 percent and we are sticking with all other guidance we provided earlier this year. The long-term prospects of Allegiance Telecom remain very positive in our view and we believe our stock is grossly undervalued at present levels," he said.

"We saw orders for service fall off immediately after September 11 as our end user customers, like most of us, were preoccupied with the tragic events that befell our country, but activity has already begun to ramp up," said Tony Parella, executive vice president of Allegiance. "Even if we experience a prolonged economic downturn, I see very little negative impact on our core business. The demand for choice in local communications remains as strong as ever in the SME market. In particular, our integrated offering of local and long distance voice services combined with Internet access is selling at record levels. We now have over one million local access lines installed, over 92% of which are on our facilities, and we think that the tremendous growth over the past two years will continue on a long-term basis," he said.

"It seems like we get very little credit for our financial structure in this market, but we continue to have one of the strongest balance sheets in the entire telecommunications industry," said Tom Lord, executive vice president of corporate development and chief financial officer of Allegiance Telecom. "We believe we remain fully funded through our projected cash flow break even point. A short-term reduction in revenue growth without any corresponding impact on EBITDA trends should assure investors that we know how to run this business within the funding resources we have available. We have also removed any doubt about the support we enjoy from our senior bank creditors with our recent borrowings under our credit facility," said Lord.

Allegiance Telecom, Inc. plans to conduct a webcast conference call today, September 26, 2001, at 4:30 p.m. EDT. Listen to the Conference Call live on PR Newswire.

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 34 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, Ontario/Riverside CA, 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 by the end of 2001. 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. The Company's preliminary estimates of its third quarter and year end 2001 financial and operational results, its guidance for 2002 and its belief regarding fully-funded status are also forward-looking statements.
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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 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.