The hotspot feature works, they just don't relay traffic that did not originate on the phone. Its a simple packet filter rule on their side to block it.I wonder how it prevents you from using the hotspot feature on your phone. How does their network know you have turned your hotspot on on your phone?
Nope, not a limit on TCP connections, VPN will also not help as the hotspot bypasses any VPN on your device unless rooted.Probably just a limit on the maximum number of TCP connections allowed at any single time. A typical phone using a single app in the foreground will maybe use 5 TCP connections at a time. Use a VPN, bye bye restrictions.
SIM restrictions and profiles could also theoretically disable the "wifi hotspot" setting on your phone, but it's sketchy and might not work on all devices.