Having been burned by bankruptcy once--WorldCom’s, not its own--Time Warner Telecom told investors today at the Merrill Lynch Media and Communications Conference that investment and diversification are beginning to pay off.

“When WorldCom went bankrupt, they were our largest customer,” said Larissa Herda, chairman, president and CEO of Time Warner Telecom. “We had a disproportionate share of our business coming from the communications sector…and we made the decision that we wanted to have a much more diversified revenue stream. So we spent a lot of time growing our capabilities to serve the enterprise customer.”

The enterprise customer now accounts for 57% of the company’s revenue stream as of the fourth quarter of 2005. TWT has seen an 18% compound annual growth rate in its enterprise business over the last three years.

Perhaps more important, the company has increased its margins by 2%. It has grown the enterprise business on the back of its 10 Gb/s IP backbone, in which it began investing with earnest in 2003.

“We announced [then] we would accelerate capital spending. It wasn’t always popular with investors because there was still a lot of imploding going on in the telecom industry,” Herda said. “But there is a direct correlation between the investments we were making and the growth trajectory you are seeing today.”

Michael Rouleau, senior vice president of business development and strategy, said the enterprise on which the company is now focused is most interested in their business-centric applications, and TWT’s investment in Ethernet technology is paying off in this space.

“We have always been big believers in the Metro Ethernet, and leveraging an Ethernet infrastructure gives us the capability to move other applications across [it],” Rouleau said.

He said that the additional services filling up those Ethernet connections include storage, disaster recovery, business continuity systems, VoIP and IP/VPN.

Herda said the sweet spot for the company is the top end of the small business market and a growing number of engagements in medium and large enterprises including national accounts.

She said the company has been growing into profitability as opposed to backing into it as other companies had who didn’t have either the strategy or the cash to make the right investments and the right time.

With 6000 buildings connected to its backbone, TWT will build its sales team to make the most of those connections before moving on to new markets.

“There is constantly a tension between making investments in your current markets and going into new markets, but we haven’t made an plans to expand into new markets organically. All of our markets have opportunity in them,” Herda said.

Another area the company won’t be headed into anytime soon is fixed/mobile convergence. Rouleau said customers have not asked for it and aren’t ready for it. Herda added that you might see a need for that in very small businesses, but TWT doesn’t play there.

In addition to investment, market dynamics have also aided in the company’s growth, particularly in the area of consolidation.

“We view it as an opportunity,” Herda said. “Obviously there is dislocation going on in those [consolidating] organizations as they go through the integration process, and that will take some time. It is just the beginning for them.”

TWT is still a carrier’s carrier, however, and 35% of its revenue comes from other carriers, with 20% of that coming from AT&T. “We feel good about the stability of our carrier revenue stream, but obviously we’re much more impressed with the growth of our enterprise revenue stream,” Herda said.