I hate the forced nature in all this. The DD of the fiancée calling the OP Daddy, when he is NOT. The calling of children Stepchildren and sisters and worse half-sisters, when they are none of these things. I'll ignore maternal mother as a term, because enough has been said already. Suffice to say OP, you make my blood bubble.
Your 8/7 yos ask for things and just get them?
My 7 yo would have a list of stuff a mile long, I'm not dumb enough to actually get it for him! I have every confidence in my abilities as a parent, and am not as depserate to look the good guy all the time as you pair seem to be. I'm hos mother, the only useful parent he has, it's not my job to make him like me, it's my job to raise him to understand life, and what it costs, what things when, and how to grow, develop and learn. I don't have much, but I'm not stupid enough to give my boy a phone. That's idiotic!
You and your fiancée sound about the most desperate people there are. Your girlfriend's DD too, as she is calling you daddy. You shouldn't have encouraged that, not when you have a DD of your own.
She, YOUR DAUGHTER, the ONLY one YOU have is being edged out, watching another child call you Daddy, and her life/contact with you interrupted by your cuckoo fiancée and her insecure DD.
Your fiancée is causing ructions with every female in your life, and you are blindly falling for the lot of it.
If you have to police phones at such a ridiculous age, then it's too young for them to have them. Remove the phones from the pair of them until they are at secondary school like most normal parents do.
Speak to your DD's mother, did she agree to this phone? If she wasn't consulted and isn't in favour then you ALL need to explain to your DC that a mistake was made, that all phones will be sold, the money given to them for an appropriate toy of their choice, and that is that. It's not about messages, lies, trust or anything, it's about appropriate gifts.
Who would be financing that phone btw? The mother that's struggling already? That's grossly unfair. If you have cash to finance that phone fully, then give it to your DD's mother, or put it in an ISA for her future. No child under 11 needs a phone.