But honestly, one of the reasons I haven't gotten a smartphone on AT&T is exactly this reason. It's in their documentation. I read it, decided they were dickheads, and chose a different option.
So it's good to have this cautionary tale, but the real parable is that, when you sign a contract with anybody, but particularly a known dickhead, read the fine print up front. The news that dickheads will be dickheads -- well, that's not really news, is it? The question "Are they allowed to do this?" is much better asked before you sign a contract, yet after you have examined all your other options, and have decided whether it is worth it to risk being found out.