They don't pay for ads directly. They pay for Google products to be placed on the iPhone. The last estimate I saw was about 50% of total revenue. They pay 0% to place their products on an Android device.
According to a comment from Eric Schmidt, Google makes enough money from Android to pay for its development and more. Apple takes 50% of revenue from ads shown on iOS devices. On Android, Google gets to keep 100%. Google can afford to give its revenue from the Play Store (terrible name) to the wireless carriers because it's making so much more money on ads than it does on iPhone and iPad. Apple has made iOS so inhospitable for Google that it is more financially advantageous for Google to maintain Android.
The idea that Google doesn't care about revenue is an interesting theory, but totally wrong.