Declining a fellowship opportunity for PhD research
You've pretty well answered your own question.  Be honest, and be swift so they don't waste time.  Simply tell them you received a fully-funded offer that needs an answer now, and can't afford to wait until March so you've accepted it.  Thank them for their time.

They'll understand, and be much more accepting of it now than they would be if you waited and let them put time and effort into considering your fellowship application.  Keep it simple and polite, then move on.

Also, congrats!