This does not sound good. The next step after T&C is to require AppleID if Activation Lock is activated on the watch. About Activation Lock on your Apple Watch - Apple Support so the next questions are was this a used watch? where did you buy, commercial seller or private eBayer? Hopefully my suspicion is wrong, because if it still has Activation Lock from a previous owner the lock must be removed by the owner, there are no workarounds.
I don’t think the problem is likely to be IMEI or ESN locking because the watch is not yet enabled for cellular, so it would not see the lock. You would be more likely to see this after setup when you found cellular didn’t work.