Z-Tel Reports Sharp Retail Line Growth; Increases Year End 2004 Guidance for Retail Lines

Business Wire, Dec 13, 2004

TAMPA, Fla. -- Z-Tel Technologies, Inc. (NASDAQ/SC: ZTLDC), parent company of Z-Tel Communications, Inc., a leading provider of enhanced wireline and broadband telecommunications services, announced today that its active consumer bundled service line count now exceeds 183,000, while active business line count is roughly 47,000, bringing its total bundled service line count to about 230,000.

Z-Tel's consumer line count had been in a relatively constant state of decline since mid-2003 when the count had reached a high of roughly 260,000 active retail consumer lines. In a shift of focus related to regulatory setbacks, the company had elected to allow the legacy consumer business to attrit. Consumer lines reached a low of just over 161,000 lines in late October 2004.

In early September management elected to change the company's stance with respect to its legacy consumer business. Trey Davis, Z-Tel's chief executive officer stated, "Instead of continuing to allow our traditional consumer business to remain in a continual state of decline, we are reinvesting in what we believe is still a profitable business unit. Our consumer business still generates very healthy gross margins and contribution margins. We are very pleased that we have achieved such a healthy rate of incremental growth over such a short period of time. These results are consistent with our dual track approach of investing in UNE-P (unbundled network elements platform) based services and deploying facilities where it makes sense." The company recently announced that it had deployed an Internet protocol (IP) network in Tampa, Florida and planned to complete deployment of a network in New York City by mid-January.

Davis continued, "We previously announced year end line count guidance of 225,000 total bundled service lines. Given the current success that we are experiencing, we now anticipate that we will easily eclipse 230,000 active retail lines at year end. We are also comfortable that our credit exposure and back office support cost for our new customers is in line with our expectations. As an additional benefit, most of the incremental growth that we are experiencing is in the markets in which we plan to install our own facilities over the coming quarters. This would allow us, at our discretion, to convert lines from the traditional UNE-P to a facilities platform, when and if it becomes economically attractive to do so."

Davis concluded, "We will continue investing in growing consumer and business lines through 2005. We are funding this additional marketing investment partially from the corporate cost realignment that we have been in the process of implementing for just over three months now. Despite this increased sales cost, we continue to feel very comfortable with our fourth quarter EBITDA (earnings before interest, taxes, depreciation and amortization) target of $2.5 million."

Consistent with Securities and Exchange and Commission's Regulation G, the following table provides a reconciliation of EBITDA to the Generally Accepted Accounting Principles (GAAP) measure of net income. EBITDA is not a measure under GAAP, is not meant to be a replacement for GAAP and should not be considered as an alternative to net income as a measure of performance or to cash flows as a measure of liquidity. We have included EBITDA data to assist in understanding our operating results. EBITDA is a measure commonly used in the telecommunications industry, and many securities analysts use EBITDA as a way of evaluating our financial performance.

Three Months Ending
                                                      December 31,
                                                  -------------------
                                                         2004
                                                  -------------------
Net loss                                             $     (3,928)

Interest income                                              (696)

Interest expense                                            1,457

Depreciation and amortization                               5,667
                                                     ------------

EBITDA                                               $      2,500
                                                     ============

About Z-Tel

Z-Tel offers consumers and businesses nationwide enhanced wire line and broadband telecommunications services. All Z-Tel products include proprietary services, such as Web-accessible, voice-activated calling and messaging features that are designed to meet customers' communications needs intelligently and intuitively. Z-Tel is a member of the Cisco Powered Network Program and makes its services available on a wholesale basis to other communications and utility companies, including Sprint. Z-Tel has previously announced its intention to change its name to Trinsic, Inc. effective as of the close of business on January 3, 2005. Its new NASDAQ trading symbol will be TRIN. For more information about Z-Tel and its innovative services, please visit www.ztel.com.