DALLAS, TEXAS, September 2, 1998 - Allegiance Telecom, Inc. (Nasdaq: ALGX) announced today that it initiated service in the Chicago metropolitan area. The Company is deploying a facilities-based network in Chicago, with services throughout the surrounding suburbs.

Allegiance is a competitive local exchange carrier (CLEC) that offers businesses a complete package of telecommunications services, including local, long distance, international calling, high-speed data transmission and Internet services. The Company is targeting 24 major metropolitan areas in the U.S. with its "one-stop shopping" approach. In addition to the Atlanta, Dallas, Fort Worth and New York markets where the Company has already begun to provide service, other markets scheduled for initial service in 1998 include Boston, Los Angeles, Northern New Jersey and San Francisco.

"Allegiance is excited to begin offering a reliable choice in telecom services to small and medium-sized businesses," said Tony Parella, National Vice President of Field Sales. "Allegiance will provide unique value by offering a 'one-stop shop' for all communication needs - packaged with consolidated billing arrangements and superior customer service. Users of voice, data and Internet services will now have an expanded choice for their communications needs, similar to the choices customers can now make when selecting a long distance phone company."

Allegiance is one of the few carriers to implement permanent local number portability (LNP) in the Chicago market. Permanent LNP is an important issue to CLECs like Allegiance, because it helps to make the transition from one service provider to another seamless. It also enhances Allegiance's product offerings, since customers no longer have to face the inconveniences of the industry's temporary (interim) number portability approach of remote call forwarding (which limits the number of enhanced features that customers may obtain).

The Chicago sales office is located at 111 East Wacker Drive; the company-owned switch site is located at 140 South Dearborn. Both are located within the downtown Loop area.

Allegiance is a competitive local exchange carrier headquartered in Dallas, Texas. The Company's web address is www.allegiancetele.com. Allegiance's common stock is traded on the Nasdaq National Market under the symbol ALGX.

NOTE TO EDITOR: Royce Holland, chairman and CEO of Allegiance Telecom, was one of the original founders of MFS Communications Company, the first major competitor to the Bell System. As president of MFS, Holland was an industry leader in developing the competitive provisions of the Telecommunications Act of 1996, which opened the local exchange market to competition throughout the U.S. Under Holland's leadership, MFS grew from a privately held start-up operation to one of the Nasdaq 100 Index companies with annual revenue of approximately $1 billion and a market value of approximately $13 billion.