Freshtel's VoIP dreams turn into a nightmare?

Australian internet telephony minnow Freshtel, a consumer player that recently started providing enterprise services, today revealed to the ASX it had depleted around half its cash reserves over the past year.

Freshtel CEO
Rhonda O'Donnell
(Credit: Freshtel)

Earlier this month the firm said that internet telephony was a viable option for businesses looking to reduce their operational costs, as it inked a deal with local call-centre outsourcer Quantum Multimedia Communications, which would see the firm's outbound calls to mobiles passed over Freshtel's network.

Although, the long-term viability of Freshtel's model is in doubt after it today revealed its net losses after tax grew slightly in the past year to $7.81 million, compared with $7.61 million in 2007.

Freshtel's revenues were up slightly on the previous year, reaching $4.84 million; however, the company's main expense is related to employee benefits, which increased $474,000 to $6.2 million. The company's executive team alone was paid almost $2 million, with chief executive Rhonda O'Donnell being paid a total of $414,000 and Freshtel founder Michael Carew picking up $307,000.

Freshtel had $8.1 million in cash reserves, compared with $14.9 million the previous year.

Despite the continued losses, O'Donnell said in a statement that the firm's achievements over the last year were expected to deliver success in coming years as the firm had invested in research and development.

"While costs did increase this year, it was at a much slower rate than the previous year; demonstrating that we've been able to cap spending effectively," the CEO said. "Furthermore, there have been changes in staff over the past few months which will reduce employment costs, as well as cuts to some administrative costs.

The news comes as other internet telephony companies in Australia and around the world have been tightening their belts.

US internet telephony poster child Vonage has struggled in a competitive telecommunications industry, The Wall Street Journal reported in early August, with the company making a loss in the last quarter. The company was trying to reduce the amount of customers switching to rival firms.

In Australia, Engin laid off staff over the past year and made a loss of $12.2 million.