I think that the first policy, that students should be allowed to bring cell phones to school and use them during free periods or lunch as long as they are turned off during class is the better policy. You should let the students use them first because that will reduce the amount of times kids try to sneak their phones, and get in trouble, including during class. If you let them use during lunch and free periods, then the kids will be happy to have gotten to use it at all, and therefore have no reason to sneak it in class.

Another reason why the first policy should be put into action is because sometimes kids forget things like lunch money or their homework, and they need to contact their parents to bring it. Also, if a student needs to talk to a parent about a ride home or an after school activity, but the parents can only talk during those hours because of work times, or if it involves something directly after school, then there would be a need to contact the parents during a free time or during lunch.

The last reason why you should choose policy one is because the children are going to try to communicate anyways, they mine as well do it in a manner that is at least quiet. If they do it quietly then the teachers supervising the, can get more work done, and other children that don't communicate can get things done too without the distraction of kids talking out loud around them.

The kids work hard each day at school, and they should be able to talk with their friends, why not do it quietly if they are not in a class being taught at the moment?