It's not that high to begin with, 1.2 Tb of data per month is fairly low in my opinion - especially if you have a family.
1.2 TB per month is 40 GB per day. Which is about 17 hours of Netflix HD per day. Seems like a lot, but not if you have multiple family members each watching something different (so just over 4 hours of Netflix per family member). In our case, we have a little one in the house, and Netflix is going most of the day as background for him (against my better judgement, however...). So to help mitigate the bandwidth usage, I adjusted all the profiles on Netflix to use the lowest quality setting, turn off auto-preview, and turned off auto-play next episode -- which cut my monthly usage by 2/3.
Also, a typical Linux ISO image may be about 5 GB (the one "large" item I typically download whenever a new CentOS or Debian/Ubuntu is released). So that is 8 Linux ISO's per day, so not too bad there.
The only thing I haven't measured yet is when what the kid's Zoom class uses up, and my remote RDP sessions. However with two adults in the house and a little one, my usage hovers around 500 GB -- but for some reason back in July I hit about 1 TB, and last month was 800GB.
Now if you have teens in the house, esp. if they are gamers, then I can easily seeing usage well beyond 1.2 TB.
I imagine the Xbox Games Pass is even worse for this, since you're going to download many more games.
Edit -- just did some quick searches, it appears some games require 50 - 100 GB minimum storage -- is that what is downloaded, or do they generate game assets from compressed data after installation?
A big trend in games these days what is called "live" or "service" games. These are games that are having new content added on a regular schedule (monthly, or sometimes weekly). This means its not unusual to get updates that range in size from 20-60 gigs for a single game in a month. If you play a lot of games or have kids that play different games, you can very easily be burning 200-400 GBs of data a month just keeping your games up to date.
Everything that can be compressed is compressed, though there still is room for improvement on compressing mocap (motion capture) data. Mocap is done to get characters movements more natural and to help with lip syncing, though it can take up more room than plain video. Prerendered video is not very seamless and does allow player interaction with the scene beyond choose your own adventure type options. This is more of an issue if they want to show the player character as most games have extensive customization of the look of the player character.
On technical merits it makes more sense to implement a good QoS system to ensure fair and responsive access. Caps are a business tool to bolster margins.
I think the timing of this policy change is especially tone deaf.
With my Comcast Gigabit internet I could hit the MONTHLY cap in under 3 hours of the speed I paid for.