You are not required to activate the cellular, and in that case it will behave just like a GPS only model, and will do everything a cellular model will do as long as the iPhone is nearby.
AT&T is $10/month extra on the iPhone cellular plan. Other carriers charge a similar amount.
You MUST make sure your iPhone carrier supports the Apple Watch is you want to use a cellular model.
If you just want a GOS only model, it does not matter what cellular carrier you have, the GPS model depends on the iPhone radios.
Anytime the Apple Watch can see the iPhone, it will use the iPhone radios to conserve Apple Watch battery life.