"After voluntarily filing for bankruptcy in May 2003, Allegiance Telecom is moving forward. As part of an ongoing effort to reduce expenses, Allegiance has been reviewing all of its costs and expenses. All contracts that are no longer necessary or appropriate for our business will be rejected or renegotiated as part of this effort," said Royce J. Holland, chairman and CEO of Allegiance Telecom. "Sales of our integrated products and services continue to be strong as we streamline our operations."

Allegiance Telecom had unrestricted cash and short-term investments totaling approximately $269.2 million at the end of 2Q03. "Allegiance Telecom reduced its cash consumed in the second quarter, using approximately $7.4 million of its cash and short-term investments to fund its operations, capital expenditures and debt service requirements. This represents a reduction of $13.3 million from the $20.7 million used in 1Q03. Capital expenditures were held to $4.8 million in 2Q03," said Thomas M. Lord Allegiance Telecom executive vice president of corporate development and chief financial officer.

The Company continues to see improved productivity and efficiency as it focuses its business on profitability. In 2Q03, the Company's revenue per employee increased to a record level of $226,900, an increase of $6,800 or approximately 3.1 percent over the revenue per employee for 1Q03 of $220,100 and an increase of $57,800 or approximately 34.2 percent over the revenue per employee for 2Q02 of $169,100.

Allegiance Telecom is currently pursuing financial restructuring plans under Chapter 11 of the U.S. Bankruptcy Code, as previously announced on May 14, 2003. The bankruptcy filings were made in the U.S. Bankruptcy Court in the Southern District of New York. The Company's bankruptcy case number is 03-13057(RDD) and its Bankruptcy Court filings are available via the court's website, at www.nysb.uscourts.gov. Please note that a PACER password is required to access documents on the Bankruptcy Court's website. Additional information regarding the Company's reorganization is available at www.algx.com/restructuring.

Allegiance Telecom is a facilities-based national local exchange carrier headquartered in Dallas, Texas. As the leader in competitive local service for medium and small businesses, Allegiance offers "One source for business telecomTM" - a complete package of telecommunications services, including local, long distance, international calling, high-speed data transmission and Internet services and a full suite of customer premise communications equipment and service offerings. Allegiance serves 36 major metropolitan areas in the U.S. with its single source provider approach. Allegiance's common stock is traded on the Over the Counter Bulletin Board under the symbol ALGXQ.OB.

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 impact of the bankruptcy filing on the Company's business, the Company's ability to timely and effectively provision new customers; the Company's ability to retain existing customers; 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 June 30, 2003. 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.