I don't get it. It's a product the whole country wants, rolled out to only 25 cities and they're done growing? Can anyone make a case for why this isn't a horrible business decision (if true)?
Having a foot in the ISP game is a good existential hedge. It gives Google practice at doing something absolutely required for their business model to keep working. If ISPs started doing dastardly things against the dumb pipe/network neutrality model or started raising prices astronomically, Google could scale up their ISP model to keep people connected to keep the ad stream going.
I do think it's a bad decision not to keep rolling out. But I think Google has a ton of difficulty maintaining sufficient caring for non-new non-shiny things, and is plagued by ads being so overwhelmingly bigger than everything else.
The regulatory and logistical challenges to rolling out in new cities vary extremely widely, and this isn't their core business or core competency. Compare that to telcos, who focus exclusively on these problems, and it's relatively expensive for Google to compete in this area compared to telcos.
Of course, that's assuming telcos are investing at all (which they aren't, at least not when Google or municipalities aren't threatening them with competition), so this argument isn't automatically categorically correct. But that's the gist of it, and the truth is probably somewhere in the middle.
Selfishly, I want Google to expand Google Fiber, but I would actually rather have municipalities force existing telcos to deliver on the investments that they've already paid for (with taxpayer money, in many cases). At the end of the day, that's the real problem. Google Fiber is just a stopgap.