DALLAS, May 13, 2002 -- Allegiance Telecom, Inc. (Nasdaq: ALGX), a leading national integrated communications provider (ICP), today hailed the U.S. Supreme Court's decision upholding the use of TELRIC (Total Element Long Run Incremental Pricing) in the pricing of interconnection and unbundled network elements (UNEs) in Verizon Communications, Inc. v. Federal Communications Commission (FCC). The Court's decision eliminates uncertainty regarding implementation of the Telecom Act of 1996 and further endorses the competitive thrust of the Act and its pro-competitive pricing.

"Today, the United States Supreme Court rebuffed yet another Bell company attempt to regain their stranglehold on U.S. telecommunications by re-writing the Telecom Act. Today's decision is a victory for consumers and competition and a defeat for re-monopolization," said Royce J. Holland, chairman and chief executive officer of Allegiance Telecom, a competitive local exchange carrier founded after the passage of the historic Telecommunications Act of 1996.

"This decision validates the use of TELRIC as the appropriate basis for pricing the unbundled loops and other bottleneck portions of the Bell companies' networks that Allegiance Telecom must access to compete with the Bell companies for small and mid-sized business customers," said Holland. "The incumbent local exchange carriers' (ILECs) egregious bid to increase their prices to include embedded or historical costs and universal service subsidies for the portions of the network used by competitive local exchange carriers has been clearly repudiated."

Noting that many of the states are now in the process of reducing the price of unbundled network elements, Holland said, "The recent favorable trends on reducing UNE prices in states such as New York, New Jersey and California should accelerate further as a result of this decision. In fact, today is likely an important high water mark for the telecom arena: the prices we are charged by the Bells will continue to decrease from here, as will the prices consumers pay for telecom services."

The Supreme Court decision noted "Under the local-competition provisions of the [1996 Telecommunications] Act, Congress called for ratemaking different from any historical practice, to achieve the entirely new objective of uprooting the monopolies that traditional rate-based methods had perpetuated." Moreover, the Court found that "the [1996 Telecommunications] Act was 'deregulatory' ... in the intended sense of departing from traditional 'regulatory' ways that coddled monopolies" and that "deregulatory character does not necessarily require the FCC to employ passive pricing rules deferring to incumbents' proposed methods and cost data."

In addition to upholding the FCC's forward-looking pricing methodology known as TELRIC, the Court also upheld the FCC's order requiring the ILECs to combine packages of UNEs allowing competitors the same access to combining the building bocks of the ILEC's network as the ILECs enjoy when they offer services competitive with Allegiance Telecom. As a result of the Court's decision, competitors will be to become more efficient in their operations while enjoying lower costs.

In rejecting the ILEC's claims that they had no incentive to invest under TELRIC, the Court reached the commonsense conclusion that "so long as TELRIC brings about some competition, the incumbents will continue to have incentives to invest and to improve their services to hold on to their existing customer base. A newcomer could not compete with the incumbent carrier to provide local service without coming close to replicating the incumbent's entire existing network, the most costly and difficult part of which would be laying down the last mile of feeder wire, the local loop, to the thousands (or millions) of terminal points in individual houses and businesses."

Based in Dallas, Allegiance Telecom is a facilities-based 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.