It can, but it won't do you much good. The backup interface command requires the link failure to be detected by the interface (usually due to loss of HDLC or PPP keepalives). An Ethernet interface almost never goes down at the physical layer, so backup interface never kicks in.
You can expect to get a bunch of responses to your question, because there are many ways to approach dial backup and which is right for you will depend on a number of factors, including your router platform, your experience level, how your telco bills for calls, your expected usage, even where you are!
Your three choices are "backup interface," "Dial on demand routing," and "Dialer watch." All have advantages and disadvantages (there is extensive discussion in my book, the tradeoffs between DDR and backup interface are discussed in a white paper on my web site).
If you choose to use dialer watch, make sure you are running 12.2 IOS or a recent 12.1 release. Although introduced in 12.0, Cisco could not get dialer watch to work right until 12.1(7). 12.3 has some obscure problems with dialer watch that you probably will never detect, but unless you need a 12.3 feature, I'd stick with 12.2 for now.
Also use care with dial on demand and backup interface, there are many undesireable interactions between dial backup, dialers, and various switching modes on different platforms, so a configuration with is rock solid on one IOS release/platform combination may perform poorly (or not at all) on another combination.
Finally, whatever you do, make sure you include a means to test your ISDN lines when not required for backup, and a means to detect and report when you are running on ISDN. Otherwise, you'll find your ISDN line will be dead when you need it, and if not, your first indication of link trouble will be when a humongous ISDN bill arrives.
Good luck and have fun!
Vincent C Jones
www.networkingunlimited.com
