(FORTUNE Small Business) – OneUnited bank is among the nation's largest minority-owned financial institutions. Over the past decade CEO Kevin Cohee has built a small community lender in Boston into a national bank with $25 million in revenues last year by systematically acquiring local lenders from Miami to Los Angeles. The bank now has nine branches in California, Florida, and Massachusetts.

Cohee failed to predict, however, that his company's rapid expansion would send communication costs spiraling out of control. By 2000 the bank was buying phone service from a grab bag of local providers, each with its own contract and fee structure, says James Barry, OneUnited's chief technology officer. And while some branches enjoyed top-of-the-line digital handsets, others lacked access to voicemail and other basic services.

Like an increasing number of small companies around the country, OneUnited turned to voice over Internet Protocol (VOIP) telephony. VOIP converts analog voice signals into digital data packets that travel over the Internet or conventional telephone networks. The technology allows users to place local and long-distance calls without paying extra phone charges. Once the preserve of technophiles, VOIP is starting to gain traction in the small-business world. By 2009 a third of small organizations in North America will use VOIP, up from 20% today, predicts Silicon Valley-based Infonetics Research.

Starting in 2000, Barry spent two years evaluating VOIP services from Avaya, Cisco, and California-based ShoreTel. The ShoreTel bid came in significantly lower than the competition's, Barry says. And while Cisco's and Avaya's solutions required expensive implementation assistance from engineers and trainers, ShoreTel delivered a simple system with minimal support requirements.

Today OneUnited's VOIP network supports nine of the bank's sites nationwide. Using IP-enabled phones with an Ethernet connector, a OneUnited account manager in Boston can call a teller in Los Angeles without paying long-distance charges. A notification feature can alert employees to new messages by calling them at an external number or sending a page. And a centralized voicemail service allows mobile employees to receive phone messages on their laptops.

In the past OneUnited relied on as many as eight local telecom companies to manage its geographically dispersed telephone systems. If an employee moved from a Miami branch to a Los Angeles branch, local service representatives would have to visit both locations to make the necessary physical adjustments. OneUnited was spending $18,000 a year on service contracts, and technicians would often take as long as three days to respond to a request. Now a single VOIP network administrator manages the entire OneUnited voice network from his Los Angeles office.

The total implementation cost for the network was $225,000, including phones for 140-plus employees, software, and configuration costs. OneUnited also pays an additional $1,000 a month in network expenses. But over the past two years, Barry says, the company has been able to slash its $10,000 monthly long-distance expenses to virtually zero by switching to VOIP. Time-strapped receptionists used to field customer calls to local branches; ShoreTel's call routing has consolidated calls to one number. Customer queries now automatically travel over the company's IP backbone to a call center in Los Angeles. As a result, OneUnited was able to cut three receptionist jobs, saving $75,000 a year. By 2007 the company expects to have saved a total of $600,000 by adopting VOIP.

Internet telephony does raise serious security issues. "VOIP routes traffic over a very public, very chaotic, and very unsecured Internet," warns Carmi Levy, an analyst at Info-Tech Research Group. But rigorous data encryption and adequate bandwidth ensure that OneUnited doesn't risk critical data online. As part of OneUnited's network service package, MCI encrypts 100% of the traffic that travels over the bank's wide-area network. "I rest comfortably knowing that it would take the best hackers years to hack my voice data," says Barry.

Cohee's original vision for OneUnited was to "gather small deposits from African Americans, combine them, and then reinvest them in the economic development of the community," says William Bradford of the University of Washington in Seattle, a finance scholar who has studied the company's history. Thanks to VOIP, OneUnited can now realize that vision without spending a fortune on communications. And that helps OneUnited give its competitors a run for their money.