Walkie-Talkie
Will walkie talkie still work when there is no service or phone connection?
Apple Watch SE
To use Walkie-Talkie, you and your friend both need Apple Watch Series 1 or later with watchOS 5.3 or later. You also both need to set up the FaceTime app on your iPhone with iOS 12.4 and be able to make and receive FaceTime audio calls. So you need service and/or phone connection. For more info, see:
Use Walkie-Talkie on your Apple Watch - Apple Support