Mass illiteracy doesn’t mean we cease being able to sound out words. It means totally misconstruing the intent of a tweet. It means being unable to parse a paragraph of a Victorian novel. It means a growing number of people who’ve not heard of, say, Hamlet. We are already there.
It’s not that people will become entirely illiterate, it’s that reading comprehension and people’s ability to understand the central point of what they’re reading will become so terrible that meaningful discourse will become nearly impossible because people will increasingly respond to what they think someone is saying rather than what is actually being written. Many who pay attention can already see this happening.