How the fuck is this a thing?

Money

How are they allowed to control how I use my data?

You gave them permission when you signed the deal. Pretty simple.

It’s pretty common to buy phones from electronics stores in Denmark, without a carrier attached. So locking down the phone isn’t as common here, but that doesn’t mean that ISPs aren’t still up to no good. I heard about one company that would look at the IP header and if your packets came with a TTL of 63 or less, then the ISP would know that you had a tethered connection and would count the traffic differently.

The phone pulls carrier specific settings based on SIM card carrier data. Apple allows the carrier to set a hotspot block

I share your bafflement; it is nonetheless very much a real thing.