I think there are completely valid cases for having a locked down phone, but it should be up to the user, not the device/OS maker. In this case, I don't think a phone developer can negotiate fair terms until the users have choice.
Single purpose locked-down devices are all around us from ereaders to TV streaming boxes to game consoles, and here I think it's important to distinguish by purpose from the more general purpose of a phone.
Microsoft was forced to open up browsing/programming/AV APIs, on which future innovation was built. What Epic is asking for is no different IMO. I just don't think the benefits of multiple open platforms can be understated similar to Windows vs. Linux over the last twenty years.
(Android is a more complicated story; if you mean "The Android ecosystem tied to Google Play Services and controlled by Google," I can agree. There's a whole chunk of Android not meeting that criteria, and by many people's estimates, it's behind the 'closed' one for features and reliability).
You could only install apps outside the store via the SDK.
Later on, during the Ovi Store days it was possible to buy applications and install them via the phone management software, which only technical inclined users did.
Also, I'm not sure why you think Apple v. Pepper is relevant here?