The apparent collapse of municipally-supported plans to build WiFi networks in several U.S. cities has backers of rival technologies breathing sighs of relief.

The prospect of having municipal governments as competitors in the most lucrative urban markets could significantly reduce demand for commercial wireless data services based on rival technologies such as WiMAX and EV-DO, said Joe Nordgaard, director of wireless consulting firm Spectral Advantage.

“Private enterprise cannot muster the same kind of financial resources and forgo losses like the government can,” he said. “Muni WiFi undermined private enterprise and I am sure there are a lot of people involved with WiMAX, EV-DO, etcetera, who are happy to see it go,” he said.

One such person is Eran Ershed co-founder and VP of marketing for WiMAX chip-maker Altair Semiconductor.

“This may be bad news for the companies that supply mesh WiFi equipment to municipalities, but for most others competing with the government is not a great proposition,” he said. “The government has different ROI goals.”

WiFi is one of several wireless technologies capable of carry high-speed data. Rivals include so-called EDGE technology, a long-range cellular data service being rolled out by AT&T and T-Mobile, and similar service known as EV-DO that is backed by Verizon Wireless, Sprint Nextel, and Alltel. WiMAX is an emerging very-long-range wireless broadband service being built by Clearwire and Sprint.

Atlanta-based Internet service provider EarthLink last week pulled back from plans to build, manage, and maintain mesh-WiFi networks in San Francisco and Houston. The company had originally agreed to pay for the construction of the networks and recoup its investment by charging users.

When it became clear to the firm that it had overreached, EarthLink attempted to amend the deals to share some of the cost with the municipalities. The cities reportedly refused.

A number of other municipal governments including Chicago, St. Petersburg, Florida and Alexandria and Arlington, Virginia, decided to shelve plans to build similar WiFi networks.

Those developments prompted some observers to suggest the concept of city-wide WiFi networks may have been doomed from the start because the so-called meshing equipment needed to transform WiFi from a short-range wireless technology into one capable of blanketing an entire city is too expensive.

“Meshing was originally designed as a military communications application used in open fields,” Mr. Nordgaard said. “When you are routing in a city, you don’t have a whole lot of options, and that becomes complex and expensive, as EarthLink found out.”

But not everyone agrees that muni WiFi is at death’s door.

“I think muni WiFi is evolving and the various players in the market are rethinking the business model,” said Sally Cohen, an analyst with Forrester Research. “There is still a viable muni WiFi business model that involves city agencies as anchor tenants and commitments from local businesses. But I don’t think that this is the end for muni WiFi.”