• 4Q01 Revenues of $151.8 Million - Increased by 12.3 Percent Compared With 3Q01 and 59.8 Percent Compared with 4Q00
• 2001 Revenue of $516.9 Million, 81.2 Percent Increase Compared With 2000
• Pittsburgh and West Palm Beach/Boca Raton Service Initiated -- Allegiance Telecom's 35th and 36th Markets -- Planned Build-out Now Complete
• 16 Markets Pre-Overhead EBITDA Positive in 4Q01, Driving Overall Company EBITDA Loss Margin from 31.5 Percent in 4Q00 to 14.6 Percent (excluding non-recurring charges of $5.5 million) in 4Q01
• 17 New Collocations for a Total of 789, Addressing Approximately 20.43 Million Business Lines "On-Switch"
• Acquisition of IBI Tier 1 Internet Backbone from WorldCom

DALLAS, Feb. 19, 2002 -- Allegiance Telecom, Inc. (Nasdaq: ALGX), an integrated communications provider (ICP), today announced results for its fourth quarter and year-end 2001. Allegiance reported fourth quarter revenues of $151.8 million, an increase of 12.3 percent compared with 3Q01 and full year 2001 revenues of $516.9 million, an annual growth rate of over 80 percent. Margins also improved significantly with consolidated EBITDA loss of $22.2 million (excluding non-recurring charges associated with acquisitions).

"The year 2001 was a challenge for most businesses both in terms of a slumping global economy and specifically for the telecom industry which has endured a massive shakeout of weaker or poorly capitalized companies. Despite these environmental challenges, Allegiance Telecom continued to post solid results throughout the year as evidenced by our top line growth of more than 80 percent while significantly improving margins," said Royce J. Holland, chairman and CEO of Allegiance Telecom. "With the activation of our 36th and last market in December 2001, Allegiance is now at an operational inflection point where our focus is shifting from the rapid deployment of networks to a rapid path to profitability. We continue to forecast revenue growth in excess of 50 percent in 2002 while at the same time improving margins with a goal of turning EBITDA positive during the second half of this year. This strong continuing growth is in stark contrast to the low single digit growth rates of our major competitors, the incumbent local exchange carriers (ILECs) and major interexchange carriers," he said. "At the close of 2001, Allegiance reached a long-awaited milestone. With our 36-market network buildout complete, we are the one company poised to address more than half the business lines in the United States," Holland said.

"And, as the one company with the largest network footprint serving the SME sector today, Allegiance has reinforced its competitive position as the leading nationwide competitor to the regionally focused incumbent carriers," Holland said.

Holland further stated that the Company is forecasting the following financial and operational targets in 2002:

• Installation of approximately 600,000 net new lines with Integrated Access and other T1 delivered voice and data services constituting the largest number of new installs.
• Revenue growth in excess of 50 percent, resulting in a 2002 revenue target of approximately $800 million. This is unchanged from the previous forecast.
• Continued margin improvements with a goal of turning EBITDA positive in the second half of 2002. This is unchanged from the previous forecast.
• Activation of SONET fiber networks to replace leased capacity in 2 new markets resulting in a total of 24 markets with fiber networks. Addition of 61 new collocations for a total of approximately 850 by year end.
• A capital expenditure (capex) budget in the range of $215 million to $240 million with most of the capex being driven by new installs on a success basis, and most of the remainder driven by fiber and collocation deployment. This is a change from the previous capex forecast of $225 million to $250 million.

"Despite the economic recession and continuing shakeout that have continued into the first quarter, we are forecasting another high growth year in 2002 and are looking forward to achieving the milestone of turning EBITDA positive," added Holland. "We believe that a 2002 performance at or near our forecasted targets will clearly establish that profitable high growth enterprises can thrive even in a poor economic climate."

Network Rollout Continues On Schedule

With the addition of two new markets, Pittsburgh in November and West Palm Beach/Boca Raton, Fla. in December, Allegiance Telecom completed its fully-funded network buildout. Today, 36 U.S. markets are operational 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, Pittsburgh, Portland, Sacramento, St. Louis, San Antonio, San Diego, San Francisco, San Jose, Seattle, Tampa, Washington D.C., West Palm Beach/Boca Raton and White Plains, NY.

Allegiance Telecom continued to post strong gains in its addressable market during 4Q01, adding 17 new collocations. At the end of December, the Company was collocated in 789 central offices for unbundled loops, representing an addressable "on-switch" market of approximately 20.43 million local business access lines.

Allegiance has 31 telecommunications 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 & West Palm Beach/Boca Raton, Minneapolis/St. Paul, New York & Long Island & White Plains (2), Northern New Jersey, Orange County & Ontario/Riverside, Pittsburgh, Philadelphia, Phoenix, Portland, Sacramento, St. Louis, San Antonio, San Diego, San Francisco & Oakland, San Jose, Seattle, Tampa and Washington, D.C.

Network Improvement: Metro Rings and Long Haul Fiber

During 4Q01, Allegiance continued upgrading its network with the lighting of metropolitan fiber rings. To date, 22 Allegiance markets (Austin, Boston Chicago, Dallas, Denver, Detroit, Ft. Worth, Houston, Long Island, Los Angeles, New York, Northern New Jersey, Philadelphia, Phoenix, Pittsburgh, Portland, St. Louis, San Antonio, San Diego, Seattle, Washington, D.C. and White Plains) are now 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. Long haul fiber rings now connect Allegiance switch sites in Boston, New York, Philadelphia and Washington D.C.

Financial and Operational Highlights

Allegiance Telecom posted a strong sales increase for the quarter, with lines sold increasing from 182,000 lines in 3Q01 to 190,000 in 4Q01, an increase of 4.4 percent compared with 3Q01 and an increase of 25 percent compared with 4Q00.

Net lines installed during the quarter were approximately 135,000, essentially flat with the net lines installed in 3Q01. The 4Q01 net line installations reflect the negative impact of the Sept. 11 tragedy that significantly affected sales in September and thereby reduced the backlog of orders entering the quarter. In addition, the Company took an adjustment to its installed base of lines as a result of the data reconciliation project discussed below.

For the fourth quarter and for the year ended December 31, 2001, Allegiance Telecom had consolidated revenues of $151.8 million and $516.9 million, respectively. This represents an increase of 12.3 percent as compared with 3Q01 and an annual increase of 81.2 percent over 2000. Allegiance continued 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 $27.7 million ($22.2 million before non-recurring charges of $5.5 million associated with acquisitions) and capital expenditures of $45.4 million. The Company continued on its path to profitability with EBITDA loss as a percent of revenue for the quarter at 14.6 percent (excluding non-recurring charges of $5.5 million) versus 19.6 percent in 3Q01 and 31.5 percent for 4Q00. For the full year 2001, Allegiance posted an EBITDA loss of $106.7 million (excluding non-recurring charges associated with acquisitions) and capital expenditures of $364.4 million.

Gross margin continues to be strong; for 4Q01, Allegiance Telecom's gross margin was 51.3 percent, consistent with 3Q01 gross margin of 51.4 percent and up from 50.4 percent in 4Q00.

"Allegiance Telecom used approximately $95.9 million of its cash and short-term investments during the fourth quarter to fund its operations, capital expenditures and service its indebtedness. This represents a reduction of $20.2 million from the $116.1 million used to fund operations, capital expenditures and service indebtedness in the 3Q01. The remainder of our cash used in 4Q01 was for acquisitions and investments in working capital. Net cash interest payments were $19.2 million in 4Q01 and $24 million for the full year 2001," said Thomas M. Lord, Allegiance executive vice president of corporate development and chief financial officer. "At December 31, 2001, Allegiance had an undrawn committed credit facility of $150 million and approximately $400 million of cash and short-term investments."

Back Office System and Process Upgrades

In the fourth quarter, Allegiance made significant progress in its continuing program to automate manual processes and develop electronic system interfaces to monitor work queues and improve process visibility and database consistency and integrity. A major milestone was the implementation of the Singl.eView by ADC billing system for one of the new cities, Pittsburgh, and for new customers in Philadelphia. In 2002, Singl.eView will be implemented for new customers on a market by market deployment schedule through the end of the third quarter 2002.

In 2Q01, the first automated billing interface (BIF) was implemented for unbundled loop customers between the provisioning systems and the legacy billing system -- the Abiliti platform. The elimination of manual keying of billing information into Abiliti produced two benefits. First, it eliminated the lag time (which sometimes had been over two months) in producing a new customer's first bill -- and even more important, on a going forward basis it virtually eliminated data entry errors caused by manual keying into the billing system. In the fourth quarter 2001, the automated billing interface was implemented for the Singl.eView platform for unbundled loop customers.

In 4Q01, work also began on the development of automated billing interfaces to eliminate the manual keying of data into the billing systems for Integrated Access and other T1-based products, and MACD (moves, adds, changes and disconnects) orders. These interfaces between provisioning and both the Abiliti and Singl.eView platforms for T1 delivered products, and for disconnects, are currently in testing with implementation scheduled for completion by the end of the first quarter 2002. The manual keying of new installation and disconnect information into billing will then be eliminated.

Coincident with the deployment of Singl.eView and the development of automated billing interfaces, the Company has been conducting a database reconciliation project to reconcile the order management, provisioning and billing databases for inconsistencies that had developed in the past. These inconsistencies are related to a number of factors, including as a result of manual data entry into these systems. The reconciliation project resulted in the identification and correction of discrepancies in line count between the databases.

As a result of the reconciliation, the line count in the order management system, which is the basis for tracking line count, has been adjusted downward approximately by 125,000 lines to conform with the line count in Allegiance's billing systems. The adjustment includes 95,000 facilities lines and 30,000 resale lines and results in a starting point for 2002 of 1,015,000 lines in service of which 93 percent are facilities based. The inconsistencies between the various databases had an immaterial ($5 million or less) impact on revenue because most of the adjustments are to the line count in the order management and provisioning system, not the billing systems. ARPU (average revenue per unit) for Q401, however, increases to $50.08 per line as a result of the reconciliation project ¹.

Another very significant back office system upgrade is scheduled for completion by the end of February 2002. After several months of Beta testing, Allegiance Telecom will have its trouble ticket systems fully bonded with SBC. During the 2001 testing period, Allegiance was able to enhance the customer care experience and expedite repair activity by providing customers with real time trouble ticket updates as a result of information exchanged between Allegiance and SBC through a new electronic interface. With trouble ticket bonding completed, the process of "telephone tag" between Allegiance and SBC is replaced by a real time, interactive exchange of information to expedite the resolution of trouble tickets. As previously with electronic bonding for provisioning of new orders, Allegiance plans to use the system interfaces developed in cooperation with SBC to expedite trouble ticket resolution with the other ILECs.

Tier 1 Internet Backbone Acquired

At the end of 4Q01, Allegiance acquired substantially all of the Intermedia Business Internet (IBI) assets from WorldCom, Inc. Terms of the deal were not disclosed but Allegiance confirmed that the transaction purchase price was not financially material. WorldCom was obligated to sell the IBI assets pursuant to a consent decree entered into by WorldCom and Intermedia with U.S. Department of Justice in connection with their merger last year.

"The acquisition of a true Tier I Internet backbone that has peering status with all major providers, including a three-year peering agreement with UUNET, will decrease our costs of terminating Internet traffic," said Dan Yost, president and COO of Allegiance Telecom. "We believe the Tier I backbone represents a great opportunity to further expand our data offerings and leverage our existing customer base of small and medium sized businesses that already rely on Allegiance Telecom for local voice service."

Regulatory Certifications

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.

Corporate Background

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 36 U.S. markets. 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 that 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; the Company's ability to retain existing customers; the Company's ability to obtain additional financing should it be necessary to do so; the Company's ability to develop and maintain efficient billing, customer service and information systems; and technological, regulatory or other developments in the industry and general economy that might adversely affect the Company. 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 September 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.

¹Average revenue per line is calculated by taking total revenue for the quarter and dividing it by the arithmetic mean of the quarter's beginning and ending line counts in Allegiance's order management system. This result is then divided by three (the number of months in the quarter) to calculate average revenue per line.