UPDATE 1-Saudi Atheeb's internet start ends STC monopoly

(Adds quote from new statement, background)

RIYADH, June 6 (Reuters) - Etihad Atheeb Telecommunications Co 7040.SE said it started on Saturday high speed internet in Saudi Arabia's two largest cities, officially ending Saudi Telecom's 7010.SE (STC) monopoly on fixed-line phone services.

The firm was starting operations in the Saudi capital Riyadh and the Red Sea port city of Jeddah, it said in a statement without specifying when it would begin voice services.

"Only 5.3 percent of the population have access to high-speed internet ... and a quarter have slow dial up internet," Chairman Prince Abdul-Aziz bin Ahmed bin Abdul-Aziz said in the statement.

Atheeb is expected to face tough competition from STC and two other firms that won licences last year to offer fixed-line services.

The two other firms are Optical Communications Co, led by U.S. Verizon Communications Inc (VZ.N) and al-Mutakamilah Company, which is led by Hong Kong's PCCW (0008.HK).

Internet will be crucial to the three new fixed-line operators in presenting strong enough incentives to STC's existing subscribers to switch to their networks.

Etihad Atheeb has said it plans to invest $1 billion over five years in its fixed-line operation and wants to target government and industrial hubs as well as regions covered insufficiently by STC.

State-controlled STC slashed in March internet tariffs by 70 percent in the hope of capturing half of the internet users in the Gulf Arab region's largest market as competition heats up.

STC in March had one million internet subscribers, Saeed Dhafer al-Qahtani, STC's executive director for sales and marketing, said. (Reporting by Souhail Karam; Editing by Ulf Laessing and Keiron Henderson)