Starting today, AT&T will begin restricting more than 16 million broadband users based on the amount of data they use a month. The number-two carrier’s entry into the broadband cap club means that a majority of American broadband users will now be subject to limits on how much they can do online or risk extra charges as ugly as video store late fees.

The new limits—150 GB for DSL subscribers and 250 Gigabytes for UVerse users (a mix of fiber and DSL)—come as users are increasingly turning to online video such as Hulu and Netflix on-demand streaming service instead of paying for cable.

With the change, AT&T joins Comcast and numerous small ISPs in putting a price on a fixed amount of internet usage. It’s a complete abandonment of the unlimited plans which turned the Internet into a global behemoth after the slow-growth dial-up days, when customers were charged by the minute and thus accessed the internet as sparingly as possible.

Comcast’s limit, put into place after it got caught secretly throttling peer-to-peer traffic, is 250GB—which the company says less than 99 percent of users hit. AT&T plans to charge users an extra $10 per month if they cross the cap, a fee that recurs for each 50 GBs a user goes over the cap. And while 150GB and 250GB per month might seem like a lot, if you have a household with kids or roommates, it’s not too difficult to approach those limits using today’s services, even without heavy BitTorrent usage.

And it should noted that US limits are far from the world’s worst: Canada’s recently imposed restrictions prompted Netflix to give customers there a choice of lower quality streams to keep their usage down since users are charged up to $5 per GB they exceed their cap. Caps are also worse in Australia.

But for the nation which has been key to a wildly expanding Internet, the changing tide is both a practical and cultural letdown.

The drive to cap usage is ostensibly a way to reduce costs. But in reality, it’s not about the cost of data—bandwidth costs are extremely low and keep falling. Time Warner Cable brought in $1.13 billion in revenue from broadband customers in the first three months of 2011, while spending only $36 million for bandwidth—a mere three percent of the revenue. Time Warner Cable doesn’t currently impose bandwidth caps or metering on its customers—though they have reserved the right to do so—after the company’s disastrous trial of absurdly low limits in 2009 sparked an immediate backlash from customers and from DC politicians.

The real problem ISPs want to fix is congestion due to limited infrastructure. Cable customers share what are known as local loops, and the more that your neighbors use their connection, the less bandwidth is available to you—-a situation that becomes painfully clear in the evening when cable users see their throughput fall.

The blunt force approach of a bandwidth cap does have the advantage of making users think twice about streaming HD movies from Netflix. That is, perhaps not coincidentally, doubly to the advantage of most big ISPs, because they’d rather have you spending money on their video services than a third party. Bandwidth-intense services threaten to turn the likes of Comcast, AT&T and Time Warner Cable into utilities—a dependable business, but not one that has the huge profit margins these companies have come to enjoy.

Indeed, the question of who gets to write the rules about the Internet’s pipes is the major bone of contention in the net neutrality debate, both for terrestrial and mobile data networks. When the new net neutrality rules go into effect, ISPs won’t be able to block their online video competition, but there’s no rule against doing that via bandwidth caps or tiered usage pricing.

Moreover, as we all move towards more and more cloud services, whether that’s for backups, music or movies, it’s worrisome that ISPs are more concerned about reining in their most dedicated customers in service of meeting Wall Street’s expectations. Instead, they should be taking the opportunity to dig up the streets to create fiber networks that will make us a nation that’s top in the world’s broadband ranking chart, rather than a laggard.

The real solution is adding infrastructure at the local level, though an interim solution could entail metering data only during peak times, much as mobile phone calling minutes plans apply only during peak hours.

But that just goes to show, yet again, that what’s good for the Street often doesn’t translate into what’s good for the country.

Listing image by Photo by Todd Barnard