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The linear dispersion relation of a backward-wave oscillator (BWO), derived earlier by the authors, is modified to include effects of RF surface current at the beam-vacuum interface. This modified dispersion relation results in an unstable interaction between the slow cyclotron mode (SCM) and the structure mode in addition to the conventional Cherenkov instability caused by the slow space charge mode. Numerical analysis is then carried out using parameters of a BWO experiment at University of Maryland. Fine structure of the SCM instability is elucidated. The analysis indicates that BWO radiation would not be suppressed near cyclotron absorption in an infinitely long system.