Full opinion text
JERRY E. SMITH, Circuit Judge: This is a consolidated challenge to the most recent attempt of the Federal Communications Commission (“FCC”) to implement provisions of the landmark 1996 Telecommunications Act (the “Act”). Petitioners, joined by numerous intervenors, challenge several aspects of the FCC’s Universal Service Order (the “Order”) implementing the provisions of the Act codified at 47 U.S.C. § 254. We grant the petition for review in part, deny it in part, affirm in part, reverse in part, and remand in part. I. BaCKGround. A. The 1996 Act and the Universal Servioe Order. Beginning with the passage of the Communications Act of 1934 (the “1934 Act”), Congress has made universal service a basic goal of telecommunications regulation. As Section 1 of the 1934 Act stated, the FCC was created [f]or the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.... 47 U.S.C. § 151 (as amended). Armed with this statutory mandate, the FCC historically has focused on increasing the availability of reasonably priced, basic telephone service via the landline telecommunications network. Rather than relying on market forces alone, the agency has used a combination of implicit and explicit subsidies to achieve its goal of greater telephone subscribership. Explicit subsidies provide carriers or individuals with specific grants that can be used to pay for or reduce the charges for telephone service. This form of subsidy includes using revenues from line charges on end-users to subsidize high-cost service directly and to support the Lifeline Assistance program for low-income subscribers. Implicit subsidies are more complicated and involve the manipulation of rates for some customers to subsidize more affordable rates for others. For example, the regulators may require the carrier to charge “above-cost” rates to low-cost, profitable urban customers to offer the “below-cost” rates to expensive, unprofitable rural customers. For obvious reasons, this system of implicit subsidies can work well only under regulated conditions. In a competitive environment, a carrier that tries to subsidize below-cost rates to rural customers with above-cost rates to urban customers is vulnerable to a competitor that offers at-cost rates to urban customers. Because opening local telephone markets to competition is a principal objective of the Act, Congress recognized that the universal service system of implicit subsidies would have to be re-examined. To attain the goal of local competition while preserving universal service, Congress directed the FCC to replace the patchwork of explicit and implicit subsidies with “specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service.” 47 U.S.C. § 254(b)(5). Congress also specified new universal service support for schools, libraries, and rural health care providers. See 47 U.S.C. § 254(h). It then directed the FCC to define such a system and to establish a timetable for implementation within fifteen months of the passage of the Act. The Federal-State Joint Board (the “Joint Board”), created by the Act to coordinate federal and state regulatory interests, issued two recommendations on how to implement the universal service provisions. The FCC met the statutory deadline when it issued the Order on May 8, 1997. Since that time, the agency has issued seven reconsideration orders (the last one on May 28, 1999) and has made two reports to Congress regarding the Order. The FCC designated a set of core services eligible for universal service support, proposed a mechanism for supporting those services, and established a timetable for implementation. See Order ¶¶ 21-42. Pursuant to the Act, the agency developed rules for modifying the existing system of support for high-cost service areas and created new support programs for schools, libraries, and health care facilities. 1. High-cost Support. The FCC’s plans for changing the high-cost support system required it to resolve a number of complicated issues, including (1) what methodology to use for calculating high-cost support; (2) how to allocate costs between the states and the federal government; (3) which carriers should be required to contribute to the support system; and (4) when to implement the high-cost support program. The agency resolved the question of how to calculate the proper amount of high-cost support by accepting the Joint Board’s second recommendation to identify areas where the forward-looking cost of service exceeds a cost-based benchmark and to provide extra support to any state that cannot maintain reasonable comparability. See Second Recommended Decision ¶ 19; Seventh Report and Order ¶ 61 n.157. Most importantly, the FCC decided to use the “forward-looking” costs to calculate the relevant costs of a carrier serving a given geographical area. In other words, to encourage carriers to act efficiently, the agency would base its calculation on the costs an efficient carrier would incur (rather than the costs the incumbent carriers historically have incurred). The FCC developed rules for determining which carriers should be required to contribute to the interstate universal service support system and how their contributions should be calculated. It decided to require all telecommunications carriers and certain non-telecommunications carriers to contribute in proportion to their share of end-user telecommunications revenues. See Order ¶¶ 39-42. The agency determined that to reduce the burden on individual carriers’ prices, the carriers’ contribution base should be as broad as possible. See Order ¶ 783. Therefore, the agency required contributing carriers to include their international telecommunications revenues in their contribution base and rejected claims by certain carriers, which do not receive direct subsidies from the support program, seeking an exemption from making any contributions. See Order ¶ 805. Finally, the FCC adopted a timetable for implementing its high-cost support plan. Because it has not yet developed an accurate assessment of forward-looking costs, it delayed implementation of its support program for non-rural carriers until January 1, 2000. Additionally, because the agency believes it will take even longer to develop accurate forward-looking cost models for rural carriers, it delayed the implementation of its new support plan for rural carriers to “no sooner than January 1, 2001.” See Order ¶ 204. During this delay in implementation, the FCC decided that carriers will continue to receive support at the levels generated by existing universal support programs. According to the agency, this gradual, phased-in plan for implementing its new high-cost support system meets the Act’s requirement of a “specific timetable for completion.” See 47 U.S.C. § 254(a)(2). 2. Schools AND LibRaries. Pursuant to § 254(h), the FCC adopted rules implementing new programs for schools, libraries, and health care facilities, in particular by providing universal service support for internet access and internal connections in schools and libraries. See Order ¶ 436. The agency decided that any entity, including non-telecommunications carriers, that provides internet access or internal connections to schools and libraries will receive universal service support. See Order ¶ 594. To fund the new § 254(h) programs, the FCC accepted the Joint Board’s recommendation to assess the interstate and intrastate revenues of providers of interstate telecommunications service. See Order ¶ 808. Because many states do not already have similar support programs for schools and libraries, the agency justified its inclusion of intrastate revenues as necessary to ensure adequate funding for § 254(h) programs. B. Challenges to the OrdeR. On September 5, 1997, petitioner Cel-page Inc. filed a motion in this court to stay the Order. We denied that motion on October 16, 1997, and rejected a similar motion by various rural telephone companies on December 31, 1997. Their petitions, along with challenges to the Order by other petitioners, were consolidated in this court. There are two sets of challenges to the Order. The first regards the FCC’s plan for replacing the current mixture of explicit and implicit subsidies with an explicit universal service support system for high-cost areas. On both statutory and constitutional grounds, petitioners attack (1) the methodology for calculating support under the plan; (2) the allocation of funding responsibilities between the FCC and the states; and (3) the agency’s restrictions on ' how carriers can recover universal service costs. Other petitioners attack the FCC’s high-cost support plan as an encroachment on state authority over intrastate telecommunications regulation because it restricts state eligibility requirements and imposes a “no disconnect” rule for low-income telephone subscribers. Petitioners also challenge, for lack of specificity and for failing to delay implementation of the plan for some rural carriers, the FCC’s timetable for implementing the new universal service plan. Additionally, petitioners challenge the FCC’s system for assessing contributions, arguing that it improperly includes CMRS providers and unfairly assesses carriers on the basis of their international and interstate revenues. The second set of challenges regards the FCC’s proposal for implementing § 254(h) programs - supporting schools, libraries, and health care providers. Petitioners claim that the FCC impermissibly expanded the scope of § 254(h) support to include the provision of internet access and internal connections. Moreover, they attack the FCC’s statutory authority to provide such support to non-telecommunications providers. Additionally, petitioners charge that the agency encroached on state authority to implement state support programs for schools and libraries and failed to designate which telecommunications services will receive § 254(h) support. They also argue that the FCC exceeded its statutory authority by requiring subsidies for toll-free telephone calls to internet service providers by non-rural health care providers. Finally, they attack the FCC’s § 254(h) contribution system because it assesses both the intrastate and interstate revenues of carriers. We affirm most of the FCC’s decisions regarding its implementation of the high-cost support system, concluding, for the most part, that the Order violates neither the statutory requirements nor the Constitution. We remand for further consideration, however, as to the FCC’s decision to assess contributions from carriers based on both international and interstate revenues. We also reverse (1) the requirement that ILEC’s recover their contributions from access charges and (2) the blanket prohibition on additional state eligibility requirements for carriers receiving high-cost support. On jurisdictional grounds, we reverse the rule prohibiting local telephone service providers from disconnecting low-income subscribers. We also conclude that the agency exceeded its jurisdictional authority when it assessed contributions for § 254(h) “schools and libraries” programs based on the combined intrastate and interstate revenues of interstate telecommunications providers and when it asserted its jurisdictional authority to do the same on behalf of high-cost support. II. STANDARD OP REVIEW. When deciding whether the FCC has the statutory authority to adopt the rules included in the Order, we review the agency’s interpretation under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), by first deciding whether “Congress has directly spoken to the precise question at issue,” id. at 842, 104 S.Ct. 2778. If so, we “give effect to the. unambiguously expressed intent of Congress.” Id. at 842-43, 104 S.Ct. 2778. In this situation, we reverse an agency’s interpretation if it does not conform to the plain meaning of the statute. This level of review is often called “Chevron step-one” review. Where the statute is silent or ambiguous, however, “the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Id. at 843, 104 S.Ct. 2778. We may reverse the agency’s construction of an ambiguous or silent provision only if we find it “arbitrary, capricious or manifestly' contrary to the statute.” Id. at 844, 104 S.Ct. 2778. That is to say, we will sustain an agency interpretation of an ambiguous statute if the interpretation “is based on a permissible construction of the statute.” Id. at 843, 104 S.Ct. 2778. We refer to this more deferential level of review as “Chevron step-two” review. The Administrative Procedure Act (“APA”) also authorizes us to reverse an agency’s action if it acted arbitrarily or capriciously in adopting its interpretation by failing to give a reasonable explanation for how it reached its decision. See 5 U.S.C. § 706(2)(A) (1994); see also Harris v. United States, 19 F.3d 1090 (5th Cir.1994). “Arbitrary and capricious” review under the APA differs from Chevron step-two review, because it focuses on the reasonability of the agency’s decision-making processes rather than on the reasonability of its interpretation. Finally, we do not give the FCC’s actions the usual deference when reviewing a potential violation of a constitutional right. “The intent of Congress in 5 U.S.C. § 706(2)(B) was that courts should make an independent assessment of a citizen’s claim of constitutional right when reviewing agency decision-making.” Porter v. Califano, 592 F.2d 770, 780 (5th Cir.1979). III. Analysis. A. High-Cost SuppoRt. 1. Methodology FOR Calculating SuppoRt for High-cost Areas. a. Forward-looKing Cost-of-Service Methodology. GTE and Southwestern Bell (collectively “GTE”) and the FCC engage in a fairly complex economic debate over the merits of calculating costs using the forward-looking cost models based on the “least cost, most efficient” carrier. Because incumbent local exchange carriers (“ILEC’s”) such as GTE will receive their subsidies, under the new system, based on the difference between the costs of providing service to a high-cost region and the revenue that could be derived from that service, GTE fears that using the costs of a hypothetical most-efficient carrier will significantly reduce the amount of universal service support it receives. i. Statutory InteRpeetation. The question, of course, is not whether it is good policy for the FCC to use such cost models, but whether the decision to adopt this methodology conforms to the plain language of the statute. If the language is ambiguous, we must then ask whether the use of forward-looking cost models is reasonable given the terms of the statute and the deference the FCC must be afforded under Chevron. Additionally, we must consider whether the agency’s actions in reaching its decision are “arbitrary and capricious” under the APA. See 5 U.S.C. § 706(2)(A). We conclude that the plain language is ambiguous as to whether the FCC’s cost models are permitted. We then decide that under Chevron step-two, the FCC’s forward-looking cost models are authorized under their reasonable interpretations of the statutory language. Finally, we do not conclude that the FCC acted in a “arbitrary and capricious” manner in reaching its decision to adopt forward-looking cost models. GTE argues that the methodology violates the “equitable and nondiscriminatory” language in § 254(b)(4). We disagree with GTE’s claim that the plain language of § 254(b)(4) prohibits the FCC from adopting its methodology. The section of the statute that GTE relies on represents one of seven principles identified by the statute as the basis for the agency’s universal service policies. Rather than setting up specific conditions or requirements, § 254(b) reflects a Congressional intent to delegate these difficult policy choices to agency discretion: “The Joint Board and the Commission shall base policies for the preservation and advancement of universal service on the following principles-” (Emphasis added.) 47 U.S.C. § 254(b). Moreover, the FCC has offered reasonable explanations for how its use of the forward-looking cost models cannot be characterized as inequitable and discriminatory. For instance, the FCC points out that all carriers, including interexchange carriers (“IXC’s”) such as AT & T and MCI, are subject to the same cost methodology and must move toward the same efficient cost level to maximize the benefits of universal service support. The term “sufficient” appears in § 254(e), and the plain language of § 254(e) makes sufficiency of universal service support a direct statutory command rather than a statement of one of several principles. Still, we do not find that the use of the single word “sufficient,” even in the language of command, demonstrates Congress’s unambiguous intent regarding the forward-looking cost models. We therefore review under Chevron step-two and conclude that the agency has offered reasonable justifications for its adoption of the “most efficient” methodology. The FCC points to cases in which agencies have adopted similar methodologies to encourage competition. It also argues that nothing in the statute defines “sufficient” to mean that universal service support must equal the actual costs incurred by ILEC’s. These reasons suffice to survive the reasonableness requirement of Chewon step-two. To be sure, the FCC’s reason for adopting this methodology is -not just to preserve universal service. Rather, it is also trying to encourage local competition by setting the cost models at the “most efficient” level so that carriers will have the incentive to improve operations. As long as it can reasonably argue that the methodology will provide sufficient support for universal service, however, it is free, under the deference we afford it under Chevron step-two, to adopt a methodology that serves its other goal of encouraging local competition. Ü. “ARBITRARY AND CAPRICIOUS.” Arguing that the FCC has departed from its own stated methodology, GTE charges the agency with “arbitrary and capricious” actions under the APA. See 5 U.S.C. § 706(2)(A). The APA’s “arbitrary and capricious” standard of review is narrow and requires only a finding that the agency “articulatefd] a rational relationship between the facts found and the choice made.” Harris v. United States, 19 F.3d 1090, 1096 (5th Cir.1994). GTE points out that while the agency has wedded itself to the “most efficient” carrier cost methodology, it used current depreciation schedules to develop its models for projecting forward-looking costs. These schedules are not based on the actual costs of the current regulated system, but, GTE contends, have been artificially deflated by state regulators so that local carriers recover less than they would in a real, competitive market. Using these artificially-deflated schedules in the cost models disadvantages the ILEC’s, because they will not be able to recover their capital costs as they would if free from regulation. Actually, the FCC has departed from its general “most efficient” methodology by making a number of adjustments to its cost model. For instance, instead of assuming the “most efficient” wire center locations in its cost models, the agency simply made calculations based on whatever wire centers already exist. See Order ¶ 251(1). This allowance actually benefits the ILEC’s. While GTE argues that the FCC’s failure to adhere tightly to its “most efficient” methodology fails the “arbitrary and capricious” test, that test, properly understood, is far less onerous. If the FCC’s departures from its methodology “articulate a rational relationship,” we will not apply the “arbitrary and capricious” remedy. The FCC seeks to mitigate the effect of the “most efficient” methodology by accounting for wire centers that already exist. Additionally, and contrary to GTE’s assertions, the agency is prescribing a range within which the depreciation schedules must fall, rather than simply adopting the schedules that already exist. For the time being, the FCC will rely on the actual depreciation schedules, because it does not see a prospect of significant competition in the near future in the high-cost markets. See Order ¶ 250(5). Moreover, the agency has committed itself to re-prescribe the range for these schedules every three years. See id. ¶ 250(5) n. 662. These reasons establish enough of a “rational relationship” with facts presented for the forward-looking cost methodology to pass the APA’s arbitrary and capricious test. b. Methodology FOR Calculating the Revenue BENCHMARK. GTE challenged the inclusion of revenues from “discretionary” services in the revenue benchmark used to compare costs and revenues for the purposes of universal service support. The Joint Board, however, recently proposed eliminating the entire revenue benchmark in favor of a single national cost benchmark. See Second Recommended Decision ¶¶ 41-50. The FCC accepted this recommendation. See Seventh Report and Order ¶ 61 (“[W]e reconsider and reject the determination in the First Report and Order that federal support for rate comparability should be determined using a revenue-based benchmark.”). This decision moots GTE’s challenge to the inclusion of discretionary revenues, because no revenues will be used in the calculation of the benchmark. A case becomes moot if (1) there is no reasonable expectation that the alleged violation will recur and (2) interim relief or events have completely and irrevocably eradicated the effects of the alleged violation. County of Los Angeles v. Davis, 440 U.S. 625, 631, 99 S.Ct. 1379, 59 L.Ed.2d 642 (1979). The FCC’s new approach eradicates any possible effect of discretionary revenues on the levels of the petitioners’ universal service support. We therefore dismiss, as moot, GTE’s challenge to the use of discretionary revenues in the high-cost support benchmark. GTE also challenged the FCC’s use of a national benchmark for purposes of revenue calculations.- Because GTE’s challenge focused on the problems of a national revenue benchmark, the FCC’s elimination of the revenue benchmark also moots its challenge to the national benchmark. GTE’s basic attack on the national revenue benchmark is that ILEC’s operating in states with below-average revenues will be systematically undercompensated by a universal service support system based on a national revenue benchmark. But none of these arguments necessarily applies to a cost-based national benchmark. Indeed, the FCC adopted the cost-based national benchmark because it agreed that “revenues may not accurately reflect the level of need for support to enable reasonably comparable rates because states have varying rate-setting methods and goals.” Seventh Report and Order ¶ 62. Because the subject matter of GTE’s appeal — a national revenue benchmark— no longer has any legal force, “[a]ny further judicial pronouncements ... would be purely advisory.” See Center for Science in the Public Interest, 727 F.2d at 1164. “We cannot assume jurisdiction to decide a case on the ground that it is the same case as one presented to us, when it is admitted that it is not and when it presents different issues.” Id. at 1166 n. 6 (emphasis added). Therefore, we also dismiss, as moot, the challenges to the FCC’s national revenue benchmark. c. Limiting the Federal Mechanism to Twenty-five Peboent of Universal ServiCE Costs. The third step in the FCC’s methodology for calculating support to high-cost, non-rural areas allocates 25% of the funding responsibility to the agency, leaving 75% to be provided by the states. In other words, only 25% of the overall funds for the explicit universal support program for high-cost areas will be provided from the funds collected from interstate telephone calls; the rest must be provided by the states, usually through charges on intrastate service. Certain states, GTE, and Kansas and-Vermont challenged this allocation on statutory grounds. Specifically, they question the 25% rule for failing to provide “sufficient” support under § 254(e). Kansas and Vermont also challenged the FCC’s 25% allocation decision for lack of notice and for failing to ensure reasonable comparability between rural and urban rates. As in the case of arguments against the revenue benchmark, we do not consider these challenges, because the FCC has accepted the Joint Board’s recommendation to scrap the 25%/75% rule. The Seventh Report and Order proposes a new methodology that places “no artificial limits on the amount of federal support that is available” when a state cannot by itself maintain reasonable comparability. Seventh Report and Order ¶ 34. This new framework is “a different regulation, containing on its face reasoning not previously articulated by the agency as its policy.” Center for Science in the Pub. Interest, 727 F.2d at 1166. Therefore, we dismiss the challenges by all of the petitioners as moot. d. PeopeRly Consulting with the Joint Board Before Amending Jurisdictional Separations Rules. GTE raises an administrative procedural objection to the FCC’s adoption of new jurisdictional separations rules that propose to end existing high-cost fund support for non-rural carriers on January 1, 1999. Instead of arguing that the new rule is arbitrary and capricious, GTE claims that the agency failed properly to refer the matter to the Joint Board, in violation of 47 U.S.C. § 410(c), which states that “[t]he Commission shall refer any proceeding regarding the jurisdictional separation of common carrier property and expenses between interstate and intrastate operations ... to a Federal-State Joint Board.” The FCC responds that it did make a general referral to the Joint Board in March 1996 and that the Joint Board subsequently recommended that the agency replace the existing support mechanisms for non-rural carriers with a new universal service system. The plan to replace the existing support mechanism, the FCC argues, requires a change in the method of jurisdictional separation, and by recommending the plan, the Joint Board had already considered the jurisdictional effects. GTE and the FCC disagree on the level of specificity needed to fulfill the Joint Board consultation requirement of § 410(c). GTE argues that simply identifying the broad subject of universal service reform did not raise the issue of altering the system that is used to shift costs in many high-cost areas to the interstate jurisdiction. In particular, GTE contends that the Joint Board failed to consider the amounts of the fund allocation between the interstate and intrastate jurisdictions when it considered the plan to implement a new support mechanism. Although the FCC does not have to raise every possible detail in its referral to the Joint Board, it must show that the Joint Board was aware of the effects on the jurisdictional separations rules of replacing the existing high-cost support system. The plain language of the statute shows that any shift in the allocation of jurisdictional responsibility lies at the heart of § 410(c)’s consultation requirement. The Joint Board was aware that replacing the existing high-cost support system will affect the jurisdictional separations rules. This is shown by the fact, for instance, that the Jqint Board made a detailed discussion of the current jurisdictional separations rules, acknowledging that they “currently assign 25 percent of each LEC’s loop costs to the interstate jurisdiction.” See First Recommended Decision ¶ 188. In discussing the comments submitted by affected parties, the Joint Board recognized that the jurisdictional separations rules are part of the old regime of “embedded” or “historical” costs. See id. ¶ 207.. Thus, the Joint Board does seem to recognize that the jurisdictional separations rules are part of the old “embedded cost” system and were developed in the context of allocating the actual costs of developing the local and long-distance networks. By recommending replacing the historical cost system with a forward-looking “most efficient” cost model, the Joint Board must have considered that the jurisdictional separations rules no longer would apply in the same way. Although no detailed discussion appears in the First Recommended Decision, the Joint Board’s recognition that the jurisdictional separations rules would be affected by adopting a new cost model fulfills § 410(c)’s consultation requirement. 2. Eligibility Requirements for Carriers Seeking Universal Servioe Support. The states and intervenor Southwestern BeU (“SBC”) challenge the FCC’s reading of the Act’s provisions governing eligibility requirements for carriers seeking universal service support. In general, they question the agency’s interpretation of § 214(e) as too narrow and restrictive of the ability of state commissions to set their own criteria and exercise their own discretion over a carrier’s eligibility. a. Limiting the Criteria That State Commissions May Consider When Assessing a Carrier’s Eligibility. Section 214(e) governs the designation of carriers eligible to receive federal universal service support. Section 214(e)(1)(A) and (B) set out the eligibility requirements, and § 214(e)(2) governs the designation of eligible carriers by state commissions. In the Order, the FCC interpreted § 214(e)(2) in this way. With limited exceptions for rural areas, a state commission has no discretion when assessing a carrier’s eligibility for federal support. If a carrier satisfies the terms of § 214(e)(1), a state commission must designate it as eligible. Thus, the FCC ruled that a state commission may not impose additional eligibility requirements on a carrier seeking universal service support in non-rural service areas. See Order ¶ 135. The agency does permit the states to impose service quality obligations on local carriers if those obligations are unrelated to a carrier’s eligibility to receive federal universal service support. According to the FCC, this interpretation “gives effect to the unambiguously expressed intent of Congress.” See Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. The states and SBC offer two lines of attack. First, they argue that the plain language of § 214(e)(2) does not support the FCC’s blanket prohibition on additional state eligibility requirements. Second, they say that the FCC exceeded its jurisdictional authority, in violation of 47 U.S.C. § 152(b), by purporting to interfere with the states’ regulation of intrastate service. Because we conclude that the agency erred in prohibiting the states from imposing additional eligibility requirements, we do not reach the states’ jurisdictional challenges. On the plain language front, the states argue that § 214(e)(2) does not unambiguously prohibit them from regulating carriers receiving federal universal support. Specifically, they contend that Congress did not mean to prohibit the states from imposing service quality standards on eligible carriers. According to the states, the language on which the FCC relies— “[a] State Commission shall upon its own motion or upon request designate a common carrier that meets the requirements of paragraph (1) as an eligible telecommunications carrier” — does not expressly circumscribe state authority to add additional eligibility requirements. The agency’s best hope for express authority for its action rests on the statute’s use of the word “shall” in § 214(e)(2). Generally speaking, courts have read “shall” as a more direct statutory command than words such as “should” and “may.” Though we agree that the use of the word “shall” indicates a congressional command, nothing in the statute indicates that this command prohibits states from imposing their own eligibility requirements. Instead, we read § 214(e)(2) as addressing how many carriers a state may designate for a given service area, and not how much discretion a state commission retains to impose eligibility standards. The first sentence requires state commissions to designate at least one common carrier as eligible, but that carrier must still meet the eligibility requirements' in § 214(e)(1). The second sentence then confers discretion on the states to designate more than one carrier in rural areas, while requiring them to designate eligible carriers in non-rural areas consistent with the “public interest” requirement. Nothing in the statute, under this reading of the plain language, speaks at all to whether the FCC may prevent state commissions from imposing additional criteria on eligible carriers. Thus, the FCC erred in prohibiting the states from imposing additional eligibility requirements on carriers otherwise eligible to receive federal universal service support. The plain language of the statute speaks to the question of how many carriers a state commission may designate, but nothing in the subsection prohibits the states from imposing their own eligibility requirements. This reading makes sense in light of the states’ historical role in ensuring service quality standards for local service. Therefore, we reverse that portion of the Order prohibiting the states from imposing any additional requirements when designating carriers as eligible for federal universal service support. b. The Terms op Section 214(e)(5) GOVERNING THE DEFINITION OF ServiCe Areas. In their initial brief, the states argued that the FCC had impermissibly encroached on their exclusive authority to designate service areas for universal service support. The FCC, however, pointed out that ¶ 185 of the Order had only encouraged the states to make certain decisions when designating service areas. The agency explicitly denies that the paragraph requires the states to follow its “encouragements.” Thus, it appears that the states misinterpreted the FCC’s intentions in ¶ 185 and that there is no issue left for us to address. The states, however, continue to contest one aspect of the Order regarding the definition of service areas. The FCC maintains that it may establish a different definition of service areas for rural carriers, with the agreement of the states, without having to submit such a new definition first to the Joint Board. The states argue that the plain language of § 214(e)(5) allows the agency to act only “after taking into account recommendations of [the Joint Board].... ” The FCC has two procedural responses and one substantive defense. Because we agree with the FCC that the states have no standing, we do not reach the FCC’s other defenses. The agency argues that the states have no standing to challenge its ruling, because the states have failed to show any harm. After all, as the FCC points out, it must still garner the approval of each respective state before a rural service area can be re defined. The states argue that they are harmed because the state members of the Joint Board are denied a chance to participate in the decisionmaking process, so the states are less able to coordinate with each other. They further contend that bypassing the Joint Board denied the states any meaningful participation in revising service area definitions for rural territories. This claim is weak, because the states’ independent ability to veto particular service areas seems to provide them with a substantial amount of “meaningful participation.” This is unlike the situation in the cases the states rely on, in that the states here are not challenging a federal preemption order that threatens their sovereign authority. See California v. FCC, 75 F.3d 1350, 1361 (9th Cir.1996). Therefore, the states lack standing to challenge this portion of the Order. c. DecliniNG To Require Eligible CARRIERS To Offer Supported Servioes on AN Unbundled Basis. GTE argues that the FCC’s failure to require carriers to “unbundle” their offerings when receiving universal service support violates the congressional intent expressed in § 214(e)(1) under Chevron step-one. “Bundling” refers to a carrier’s practice of offering different services together as one package. For instance, a carrier might offer basic phone service as part of a package that includes call-waiting and voicemail. GTE fears that a new carrier could “cherry pick” high-profit customers by offering only bundled local telephone service packages. Because the intended beneficiaries of universal service are, by definition, less able to afford even basic service, offering expensive bundled packages will allow new carriers to steal wealthier, low-cost customers while leaving ILEC’s such as GTE to provide service to everyone else. GTE reasons that Congress, by requiring carriers receiving federal universal service support to advertise the availability of its supported services, intended to require new carriers to participate in universal service — an intent that would be thwarted by allowing the new carriers to offer bundled services. The FCC responds that the plain language of the statute is satisfied as long as a carrier offers “services that are supported by Federal universal service mechanisms.”' 47 U.S.C. 214(e)(1)(A). Except for the advertising requirement, the statute makes no mention of “bundling” or other eligibility criteria. In fact, the FCC argues that because of the exclusive grant of eligibility authority conferred on the states by § 214(e)(2), it cannot impose additional eligibility criteria. Because the statute is silent on the question of bundling, and because the statute seems to prohibit further eligibility criteria, the agency asks us to give deference to its interpretation of § 214(e) under Chevron step-two. We agree that the statute’s plain language does not reveal Congress’s unambiguous intent. It is not evident, however, that the FCC’s interpretation of the statute meets even the minimum level of rea-sonability required in step-two review. Section 214(e)(1) plainly requires carriers receiving universal service support to offer such supported services to as many customers as possible. Thus, an eligible carrier must offer such services “throughout the service area” and “advertise the availability of such services.” This requirement makes sense in light of the new universal service program’s goal of maintaining affordable service in a competitive local market. Allowing bundling, however, would completely undermine the goal of the first two requirements, because a carrier could qualify for universal service support by simply offering and then advertising expensive, bundled services to low-income customers who cannot afford it. The FCC suggests that GTE’s problems stem not from bundling but from state-imposed “carrier of last resort” (“COLR”) requirements, which prohibit ILEC’s such as GTE from disconnecting low-profit consumers and leave ILEC’s vulnerable to outside competition. But the elimination of COLR requirements would only further undermine the goal of making basic services available to low income consumers and those in “rural, insular, and high cost areas.” See 47 U.S.C. § 254(b)(3). This again would violate the express intent of the universal service program. Without a better explanation for its unreasonable interpretation, we would be inclined to find the FCC’s implementation “arbitrary and capricious and manifestly contrary to the statute.” See Chevron, 467 U.S. at 844, 104 S.Ct. 2778. Fortunately, the agency also has explained that “only an eligible carrier that succeeds in attracting and/or maintaining a customer base to whom it provides universal service will receive universal service support.” Order ¶ 138. Therefore, it reasons that if offering only bundled services would price low-income customers out of the market, the carrier offering bundled services would eventually lose universal service support. Thus, the FCC can avoid the problem of providing universal service support to carriers that do not serve high-cost customers for which the support is intended. This explanation supports the FCC’s claim that its decision to allow bundling is reasonable under Chevron step-two review. Though the decision is a close one, we conclude that the FCC’s refusal to require eligible carriers to provide unbundled services is neither “arbitrary, capricious,” nor “manifestly contrary to the statute.” See Chevron, 467 U.S. at 844, 104 S.Ct. 2778. Because the agency will prevent companies from using bundling to receive federal support while avoiding high-cost customers, we do not find its interpretation “so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” Motor Vehicle Mfrs.’ Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). 3. Authority To Prohibit Carriers from DISCONNECTING LOCAL SERVICE TO LOW-INCOME Consumers Who Fail To Pay Toll Charges. Bell Atlantic and the states challenge the FCC’s adoption of a regulation prohibiting carriers receiving universal service support from disconnecting Lifeline services from low-income consumers who have failed to pay toll charges. See Order ¶ 390. The petitioners charge that the “no disconnect” rule exceeds the agency’s jurisdictional authority under § 2(b) of the 1934 Act, which prohibits FCC regulation of intrastate telecommunications service. Because the plain language of the statute expresses Congress’s unambiguous intent, we review the agency’s interpretation under Chevron step-one. The agency has three responses. First, it argues that § 2(b) does not apply where Congress has given the FCC an “unambiguous or straightforward” grant of authority. See Louisiana Pub. Serv. Comm’n, 476 U.S. at 377, 106 S.Ct. 1890. The agency argues that Congress granted such express authority in § 254(b)(3), which directs the FCC to base its policies on the principle that “low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services.... ” As we have discussed, § 254(b) identifies seven principles the FCC should consider in developing its policies; it hardly constitutes a series of specific statutory commands. Indeed, we have avoided relying on the aspirational language in § 254(b) to bind the FCC to adopt certain cost methodologies for calculating universal service support. Just as we declined to read § 254(b), as an inexorable statutory command against the FCC, we decline to read it as a grant of plenary power overriding other portions of the Act. The agency has no “unambiguous or straightforward” grant of authority to override the limits set by § 2(b), and, accordingly, it has no jurisdiction to adopt the “no disconnect” rule on the basis of the vague, general language of § 254(b)(3). Second, the FCC contends that the petitioners’ jurisdictional challenge is inapposite because the “no disconnect” rule does not purport to regulate intrastate service, but merely prevents the disconnection of interstate service (and, as a consequence, of intrastate service) for failure to pay toll charges. As Bell Atlantic rightly responds, however, the “no disconnect” rule is a “regulation,” because it dictates the circumstances under which local service must be maintained. Therefore, the FCC, by issuing the rule, has acted “with respect to” and “in connection with” intrastate service within the meaning of § 2(b). The FCC points out that even if the “no disconnect” rule is a “regulation” within the meaning of § 2(b), courts have sustained agency jurisdiction over similar rules under the “impossibility” exception. In North Carolina Utils. Comm’n v. FCC, 552 F.2d 1036 (4th Cir.1977), the court upheld FCC regulations permitting local subscribers to connect their telephones to the local loop to make interstate calls. North Carolina previously had required subscribers to use leased telephones and argued that § 2(b) prevented FCC intervention because the vast majority of these calls were intrastate. The court rejected this argument, holding that “the FCC has jurisdiction to prescribe the conditions under which terminal equipment may be interconnected with the interstate telephone line network.” Id. at 1048. Essentially, the FCC asks us to find that the “no disconnect” rule, aimed at regulating interstate service, is impossible to separate from intrastate service. In similar cases, the District of Columbia Circuit has permitted the FCC to intervene in relatively localized service issues and has developed a useful framework for analyzing what the petitioners refer to as the “impossibility” exception to § 2(b). See Public Serv. Comm’n v. FCC (“Maryland PSC”), 909 F.2d 1510, 1515 (D.C.Cir.1990). To permit the FCC to preempt state regulation of whether to cut off low-income subscribers, that circuit requires the agency to show that “(1) the matter to be regulated has both interstate and intrastate aspects; (2) FCC preemption is necessary to protect a valid federal regulatory objective; and (3) state regulation would negate the exercise by the FCC of its own lawful authority because regulation of the interstate aspects of the matter cannot be unbundled from regulation of intrastate aspects.” Maryland PSC, 909 F.2d at 1515 (internal quotations and citations omitted). This framework creates a properly narrow exception to § 2(b) that allows the FCC to preempt state regulation only when it has shown it cannot carry out its authorized federal objectives without encroaching on state autonomy. Applying this framework to the “no disconnect” rule, we agree with Bell Atlantic that the FCC has failed to show why allowing the states to control disconnections from local service would “negate the exercise of the FCC’s lawful authority....” As Bell Atlantic points out, the agency offered only a brief explanation of what lawfully authorized federal objectives are being served by the “no disconnect” rule and why it is necessary to preempt local authority to achieve these objectives. In the Order, the FCC simply states that the “no disconnect” rule advances its goal of increasing subscribership and that it will improve the competitiveness of the market for billing and collection of toll charges. See Order ¶¶ 390-391. But the agency has not adequately explained, in either its brief or its Order, why these goals would be “negated” by allowing the states to control disconnection of local subscribers. In contrast to what occurred in Maryland PSC, where the court allowed the FCC to assert juris diction to prevent ILEC’s from shifting local costs to interstate consumers, the FCC has offered no similar explanation of how protecting interstate service requires imposition of a “no disconnect” rule. Therefore, we decline to allow the agency to assert jurisdiction over the disconnection of local service based on the impossibility exception. Finally, the FCC argues that in the wake of Iowa Utilities, it has jurisdiction over all areas, including intrastate matters, to which the Act applies. In Iowa Utilities, the Court rejected jurisdictional challenges to the portions of the FCC’s Local Competition Order implementing §§ 251 and 252 of the Act, which govern the interconnection of new local service carriers with the ILEC’s and establish procedures for negotiating, arbitrating, and approving any interconnection agreements. As in the instant case, petitioners challenged the FCC’s jurisdiction to implement the Act, arguing that much of the authority to enforce the provisions (§§ 251 and 252) remain with the state commissions by virtue of § 2(b). Specifically, they contended that the Act gives the FCC jurisdiction over intrastate matters only when the statute explicitly applies to intrastate services and specifically confers agency jurisdiction over intrastate services. The Court brushed aside these attempts to raise the § 2(b) jurisdictional fence and squarely held that “ § 201(b) explicitly gives the FCC jurisdiction to make rules governing matters to which the 1996 Act applies.” Iowa Utilities, 119 S.Ct. at 730. Though § 2(b)’s language stating that “nothing in this Act shall be construed to apply or to give the Commission jurisdiction” implies that FCC jurisdiction does not always follow where the Act applies, the Court held that “the term ‘apply’ limits the substantive reach of the statute ... and the phrase ‘or Commission jurisdiction’ limits ... the FCC’s ancillary jurisdiction.” Id. at 731. Relying on this holding, the FCC argues that because § 254-applies to intrastate as well as interstate matters, § 201(b) confers the necessary jurisdiction to implement the “no disconnect” rule. Though the Court’s broad language seems to support the FCC’s position, Bell Atlantic finds comfort in the Court’s preservation of Louisiana PSC. In reconciling its holding with Louisiana PSC, the Court held that the FCC must show that the meaning of a statutory provision applies to intrastate matters in an “unambiguous and straightforward” manner as “to override the command of § 2(b).” Iowa Utilities, 119 S.Ct. at 731 (quoting Louisiana PSC, 476 U.S. at 377, 106 S.Ct. 1890). If the agency fails in this initial task, it cannot use its normally broad regulatory authority to assert what is now only ancillary jurisdiction because of the still-intact jurisdictional fence created by § 2(b). See id. Therefore, after Iowa Utilities, § 2(b) still serves as (1) a rule of statutory construction requiring the FCC to find unambiguous statutory authority applying to intrastate matters and (2) a jurisdictional barrier restricting the agency from using its plenary authority to assert ancillary jurisdiction by “taking intrastate action solely because it further[s] an interstate goal.” See Iowa Utilities, 119 S.Ct. at 731 (citing Louisiana PSC, 476 U.S. at 374, 106 S.Ct. 1890). The question is whether § 254 does indeed “apply” to intrastate matters in a sufficiently “unambiguous” manner. Without such a finding, Iowa Utilities flatly holds that the FCC cannot use its plenary authority to assert ancillary jurisdiction. Unfortunately, Iowa Utilities provides little guidance for resolving the question whether § 254 applies to intrastate services. For the Supreme Court, “the question ... is not whether the Federal Gov-eminent has taken the regulation of local telecommunications competition away from the States. With regard to the matters addressed by the 1996 Act, it unquestionably has.” Iowa Utilities, 119 S.Ct. at 730 n. 6. The Court did not further explain why it felt §§ 251 and 252 “unquestionably” applied to intrastate matters. The FCC bases its contention that § 254 plainly applies to intrastate as well as interstate matters on § 254(b)(3),(c), and (j). According to the agency, § 254(b)(3) applies to intrastate service by stating that “low income consumers ... should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services.” The use of the word “including,” the FCC argues, indicates that the object of § 254 is to provide access to more than just interexchange services. Furthermore, § 254(c) instructs the agency to consider, in the process of establishing what constitutes universal service, whether such services “have ... been subscribed to by a substantial majority of residential customers.” Finally, § 254(j) specifically preserves the Lifeline Assistance program, which has always provided subsidies for both intrastate and interstate services. We have already discussed our reluctance to rely on the aspirational language of § 254(b). Moreover, the phrase “including interexchange carriers” cannot be said unambiguously to mean that § 254 applies to local services, and § 254(c)’s mention of a “majority of residential customers” is far from straightforward. Neither is there much guidance from § 254(j), which specifically protects the Lifeline Assistance program from being affected by any other part of § 254 but does not in any way clarify to what degree § 254 applies to intrastate universal service. Instead, there is substantial support in the statute for a dual regulatory structure in the administration of the universal service program. Section 254(d) specifically instructs interstate carriers to contribute to the FCC’s universal service mechanisms, while § 254(f) instructs intrastate carriers to contribute to the states’ individual universal service mechanisms. This section contains the only discussion of intrastate universal service mechanisms and directs intrastate carriers to report to the states rather than to the FCC. In light of Iowa Utilities and Louisiana PSC, therefore, we conclude that, “while it is, no doubt, possible to find some support in the broad language of the section for [the FCC’s] position, we do not find the meaning of the section so unambiguous or straightforward as to override the command of § 152(b).” Louisiana PSC, 476 U.S. at 377, 106 S.Ct. 1890. Unlike §§ 251 and 252, which were solely concerned with intrastate issues (i.e., interconnection of new entrants into the local telephone market), § 254 applies to both interstate and intrastate services. It does so, however, only to the extent that it gives exclusive authority over intrastate contributions to the state commissions. We find it incongruous to use this explicit limitation on FCC authority as the hook to provide it with jurisdiction. Therefore, the FCC exceeded its jurisdiction when it imposed the “no disconnect” rule. Because there is no express grant of statutory authority, a proper showing of “impossibility,” or a persuasive explanation of how § 254 applies to intrastate service, we reverse, for want of agency jurisdiction, those portions of the Order implementing the “no disconnect” rule. 4. RECOVERY OF UNIVERSAL Service Contributions. a. Requiring Incumbents To Recover Contributions THROUGH Access Charges. GTE and the FCC again wrangle over the meaning of “explicit” in their dispute regarding the rule requiring most ILEC’s to recover their universal service contributions through access charges. GTE contends that the rule violates § 254(e)’s command that any support,for universal service be “explicit,” because recovering contributions through increased access charges is a form of implicit subsidy- GTE argues that the rule unfairly disadvantages ILEC’s because, unlike their potential new competitors, they cannot recover their universal service contributions through explicit charges on their end-users, but, instead, are required by the FCC to increase their access charges on long-distance service providers. Though they do not necessarily lose out in terms of amounts recovered, GTE fears that this recovery method will put them at a competitive disadvantage because, instead of than seeing the costs of universal service on his bill as an explicit surcharge, an ILEC consumer will pay for the costs of universal service through higher rates. The FCC advances a different understanding of “explicit.” “Regardless of how carriers recover their contributions, the FCC’s universal service system ‘satisfies the statutory requirement that support be explicit’ by requiring each carrier to contribute a specific percentage of its end user revenues” (quoting Order ¶ 854). As long as carriers know exactly how much they are contributing to the support mechanisms, the subsidies are explicit. The statute provides little guidance on whether “explicit” means “explicit to the consumer” (as urged by GTE) or “explicit to the carrier” (as urged by the FCC). The statute does state, how ever, that all universal service support should be “explicit.” We read “explicit” to mean the opposite of “implicit.” See § 254(e). By forcing GTE to recover its universal service contributions from its access charges, the FCC’s interpretation maintains an implicit subsidy for ILEC’s such as GTE. In fact, requiring carriers to recover their contributions from access charges on interstate calls shifts the costs of intrastate universal service to the interstate jurisdiction. These are precisely the sorts of implicit subsidies currently used by the FCC in its DAM weighting program. See Order ¶ 212 (discussing rules that permit small LEC’s to recover costs for intrastate services from interstate access charges). We are convinced that the plain language of § 254(e) does not permit the FCC to maintain any implicit subsidies for universal service support. Therefore, we will not afford the FCC any Chevron step-two deference in light of this unambiguous Congressional intent. Because the agency continues to require implicit subsidies for ILEC’s in violation of a plain, direct statutory command, we reverse its decision to require ILEC’s to recover universal service contributions from their interstate access charges. b. Requiring Interstate Carriers To ReduCe Interstate Acoess Charges by the Amount of Federal High-cost Support They Reoeive Under the New Universal Service System. The states contest an aspect of the Order’s effect on interstate access charges, arguing that the requirement that carriers reduce their interstate access charges by the amount of direct federal high-cost support they receive will leave insufficient funds for intrastate universal service. The states make two unconvincing plain-language arguments. First, they point to § 254(b)(5)’s language about “specific, predictable and sufficient” mechanisms to “preserve and advance universal service.” As we have observed, § 254(b) identifies a set of principles and does not lay out any specific commands for the FCC. Even § 254(e), which is framed as a direct, statutory command, is ambiguous as to what constitutes “sufficient” support. Therefore, we do not consider the language an expression of Congress’s “unambiguous intent” allowing Chevron step-one review, and we review its interpretation for reasonability under Chevron step-two. The states argue that § 254(e) does not permit the application of federal universal service funds for the interstate jurisdiction. In essence, they seek to preserve state universal service support by reading the statute to require all high-cost support to remain intrastate. Though this might make compelling policy, nothing in the plain language of § 254(e) unequivocally establishes the states’ right to all of the federal universal support funds. The statutory language is at best ambiguous as to Congress’s intent, which, under Chevron step-two, leaves it to the FCC’s reasonable interpretation. The FCC has offered good reason to believe that its new explicit support through direct subsidies will replace the amounts lost through the reduction of access charges. See Report to Congress ¶ 230. To be sure, the states and interve-nor NASUCA make a plausible argument that ILEC’s will receive less under the new plan than they did through implicit subsidies. As we have determined, however, because the FCC has offered reasonable explanations of why it thinks the funds will still be “sufficient” to support high-cost areas, we defer to the agency’s judgment of what is “sufficient.” Under the agency’s new universal service plan, it is possible that the states will receive less support for intrastate universal service costs than they did under the old plan. While this may seem unfair as a matter of policy, the states have failed to show that the FCC’s interpretation, which may possibly result in a reduction of their level of support, is “arbitrary, capricious, or manifestly contrary to the statute.” Chevron, 467 U.S. at 844, 104 S.Ct. 2778. 5. ContRibutions. a. Requiring CMRS Carriers To Contribute to the Federal Universal Service Fund. Celpage Inc., a paging carrier, and in-tervenors representing a number of wireless t